Blog Tag: pension plans
Job hopping is on the rise. In fact, a new survey revealed that 64% of professionals feel that changing employment every few years is an effective way to get a higher salary.¹ This trend has led to more and more workers failing to update their contact information with previous employers, which is troublesome for pension plans because these individuals often become “missing participants.”
Companies often use a group annuity to move the benefit payment responsibility out of their pension plan. Known as a “pension buyout,” this transaction keeps the size of the pension plan manageable, minimizing volatility in the balance sheet. Group annuities are also necessary to continue the promised retirement benefits when a pension plan terminates.
Could the future of certain pension plans be in danger? That’s what some experts are speculating as the Bipartisan Budget Act of 2015 begins to roll out increases on insurance premiums for single-employer defined benefit pension plans. Annual premiums are charged by the Pension Benefit Guaranty Corporation (PBGC), a federal agency that insures private-sector pension plans against default. These premium increases can be treated as revenue gains for the government and are often used to raise money when needed. As 2017 gets underway, pension plan sponsors should become familiar with the scheduled increases and consider strategies to manage or reduce the overall impact of these annual premiums.
The debate continues over how governmental entities should fund their pension plans. Unlike pension plans sponsored by private corporations, generally no federal laws exist that define an annual minimum required contribution. Some state and local governments have laws that define a minimum required contribution, while others have none. Most stakeholders agree on several funding policy objectives. However, some objectives are considered controversial, and even when a general objective is agreed upon, some may disagree on how to best achieve or measure the objective.