Executing a Lump Sum Window

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Lee Walker
6 years ago
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1 Executing a Lump Sum Window Presented By: Jaime Packer, ASA, EA, MAAA Associate Vice President & Actuary Diane Padernacht Assistant Vice President & Actuarial Manager

2 WHY? Benefits in Focus De-risking Tool Looming new mortality tables Easier to take care of TV population now rather than later Plan size reduction under 100 lives = no audit Potential PBGC Savings 2 15

3 Flat-Rate Per Participant Premium Benefits in Focus Variable-Rate Premium as a Percentage of Unfunded Liability WHY? Scheduled and Historical PBGC Premium Increases $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Plan Year Source: PBGC Flat-Rate Premium Variable-Rate Premium Variable-rate is subject to further indexing beginning in Both flat-rate and variable rate premium are subject to further indexing beyond

4 HOW? Benefits in Focus Consult (and then consult some more) ERISA plan - Is AFTAP over 80%? Concern about settlement recognition? Any obstacles? Collectively bargained group of participants Consider projection studies to illustrate impact Goal = NO SURPRISES 4 15

5 HOW? - Example Distribution Date: September 1, 2016 Age at Distribution Date: 40 Monthly Vested Accrued Benefit payable at Normal Retirement Date: $400 Estimated Lump Sum at Distribution Date: $15,565 Based on November 2015 segment rates (1.76%, 4.15%, 5.13%) 5 15

6 HOW? Example (Continued) Impact on PBGC Premium Estimated PBGC Liability at Distribution Date: $15,698 Based on March 2016 PBGC rates (1.71%, 3.98%, 5.03%) Save at least $64/year in flat rate premium Variable rate premium stays flat Estimated Lump Sum: $15,565 Impact on Funding Liability Estimated Funding Valuation Liability at Distribution Date: $9,410 Based on 2016 HATFA rates (4.43%, 5.91%, 6.65%) Unfunded liability increases approximately $6,200 MRC increases approximately $1,000/year for 7 years Impact on Accounting Liability Possibly a settlement gain, depending on rates 6 15

7 HOW? Other Things To Consider Entire population versus subset Immediate annuity requirement Inclusion/exclusion of those over NRD/MRD or QDROS Under $5k auto-rollover? (only if valid address) Lump sum rates to be used Are accrued benefits final quality? Interest letter Outsourcing services Financial planning services 7 15

8 When? Benefits in Focus Plan Sponsor goals? 6 months on average Timeline make one and stick to it 8 15

9 Implementing a Window Consider scheduling check-in calls throughout the process Board Resolution & Amendment Ensure all appropriate components are addressed no ambiguity Who is involved? How long is the window? Have appropriate parties been notified? (e.g. trustee) Address research Pre-window mailing Obtain and review data for completeness 9 15

10 Implementing a Window (Continued) Election Forms Review contents Do you want to include your own cover letter? Addresses Check for out of country addresses 10 15

11 Window Election Period If USICG Outsourcing services are obtained for window, weekly status update (i.e. IGO/NIGO report) are sent If not, periodic actuary/client check-in is encouraged Consider reminder letter mid-way through period Participant meetings Send acknowledgement letters to participants who return forms 11 15

12 Closing the Window Deadline date agree in advance about stragglers Cash load file 12 15

13 Post Window Benefits in Focus Send letters to participants who did not respond Prepare actual impact analysis Check for settlement accounting Report on PBGC filing 13 15

14 Questions For more information: Reach out to your USICG representative or

15 Thank You Please join us for our next Benefits in Focus Webcast! 15 15

Participant Notices for. July 30 th, 2015

Participant Notices for. July 30 th, 2015 Participant Notices for Defined Benefit Plans July 30 th, 2015 Participant i t Notices for Defined Benefit Plans July 30 th, 2015 Presented By: Frederica S. Daniels, EA, FCA, MAAA, VP & Managing Actuary