PensionFundingTargetsandStrategiesBrianDonohue,ChicagoConsultingActuariesJerryMingione,TowersPerrinMay12,養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第1頁HistoryofFundingRulesInthebeginningoftime(post-ERISA)………….actuarieshadconsiderablecontrolovertheassumptionsandmethodsusedfordeterminingfundingrequirements.Financialassumptionsweresettobereasonableonalong-termbasis.Actuarialmethodswereselected,essentiallyrightfromthetextbook,withconsiderablefreedom.Unfundedliabilitieswerefundedover10-30yearperiods,basedonlevelpayments.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第2頁HistoryofFundingRulesThenthingschangedlegislatively……..In1987,OBRAinstitutedtheconceptofcurrentliability,inordertobringasolvency/terminationbasisperspectivetofundingrequirements(andtaxdeductionallowances).

Basically,planswererequiredtomaintainafundinglevelof90%ofcurrentliability.Iftheyfellbelowthislevel,theywouldberequiredtocontributeadditionalamountstorecovertheirfundedpositionover(essentially)3-5years.Currentliability-basedfundingrequirementsweremademorestringentin1994:maximumCLinterestratereducedfrom110%to105%updatedmortalitytableincreasedrequiredfunding%’sfordeficitreductioncontributions.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第3頁HistoryofFundingRulesAndcapitalmarketchangesupsetthedynamics……..Initiallyinterestrateswerehighenoughthattheterminationbasiscalculationsdidnotoverridethelong-termfundingbasisthatplanshadtraditionallyusedforfunding.Theninterestratesdeclinedinthe90’s,asdidequitymarketsintheearlyyearsofthisdecade–creatingthedoomsdayscenarioforpensionplans.Actuary-setlongterm-basedfinancialassumptionsdidnotreactmuch.Thus,thedynamicsofpensionfundingrequirementschangeddramatically.Treasurycutbacktheissuanceof30-yearbondsin1998,andtheneliminatedthementirelyin.Yieldson30-yearT-bondsdeclinedandthecreditspreadwidened.Itbecameapparentthatalegislativeremedywasrequired.Temporaryreliefwasgrantedfor-byraisingtheinterestratecapto120%.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第4頁CurrentSituationLet’scompareassumptionsinthelate1980’svs.today:*Potentiallyincreasestoabout6.4%withinterestraterelief.1988averagecontributioninterestrate8.4%8.3%30-yearTreasuryyield9.0%5.1%maximumcurrentliabilityrate10.1%

5.5%*養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第5頁CurrentSituationHere’swhatthosechangesimplyintermsofvaluationresultsandcontributionrequirements:1988withoutreliefwithreliefvaluationinterestrate8.4%8.3%8.3%currentliabilityrate10.1%5.5%6.4%AALfundedratio84%83%83%CLfundedratio115%73%81%regularminimum$47.3$49.2$49.2addtl.fundingcharge0.075.634.7minimumwithDRC124.983.9養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第6頁CurrentSituationThetypicalpensionplantodayhasacurrentliabilityfundedstatusintherangeof80-90%.Many,ofcourse,arewellbelowthislevel.Contributionrequirementstendtospikedramaticallyasfundedlevelsfallbelow90%.However,contributionrequirementsinmostcaseslagemergingfinancialexperiencebyroughly2-3years,duetotheeffectsof:volatilityrelieffour-yearaveragingofinterestratesassetsmoothingallowablecontributiontimingdelays.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第7頁CurrentSituationPlansponsorshavetypicallynotbeenproactiveinaddressingtheirdecliningfundedpositions–withafewnotableexceptions.Why?Theycountedonsmoothingtoavoidtheworsteffectsofthecapitalmarketsituation,andthatthecapitalmarketsituationwouldimproveovertime.Theycountedonlegislatedsolutionstomitigatecontributionrequirements.Theimplicationsintermsoffuturecontributionrequirementswerenotalwaysmadeclear.Thenumberofalternativefundingmeasuresmadeithardtomonitorresultsanddetermine/prioritizefundingtargets.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第8頁LessonsLearnedPoorlyfundedplansentailanumberofadverseconsequences,inadditiontospikesinfuturecontributionrequirements:quarterlycontributionrequirementsPBGCvariablepremiumsparticipantnoticesreunderfundingPBGCunderfundingnoticeadditionalminimumliability/chargestoshareholderequity.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第9頁LessonsLearnedRecentexperiencehasexposedaneedtobettermonitorCLfunding,andpotentiallyadjustfundingovertimesoastomaintainatargetfundinglevel:60%toavoidrestrictionsonbenefitimprovements80%/90%toavoidadditionalfundingcharge+participantnotice100%toavoidquarterlycontributions.110%toavoidlumpsumrestrictionstotop25.125%toallowsection420transferstofundretireemedicalbenefits(basedonOBRACL).養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第10頁LessonsLearnedOtherpossiblefundingtargets:FFLtoavoidvariablepremiumABOtoavoidadditionalbalancesheetliability.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第11頁LessonsLearnedWhileresultswerestrong,theyweren’tapanacea.Plansponsorsstillhavetheafter-effectsofsmoothingmethodologiestodealwith.Mostplansnowrealizethataminimumfundingstrategyisnotoptimal.Thereisalsoconsiderablelegislativeuncertaintyremaining:short-terminterestrateandDRC-relatedrelieflong-termfundingreform.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第12頁P(yáng)roactiveStrategiesPushbackquarterlycontributionsrequiresminoraccelerationofcontributiontimingimprovesCLfunded%reducesPBGCpremiums.AvoidDRC90%/90%/80%/80%patternavoidslargeincreaseinfundingrequirements.AvoidPBGCvariablepremiumfundingtargetbasedonFFLvariablepremiums,unlikecontributions,areadead-weightlosstoemployers.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第13頁P(yáng)roactiveStrategiesCurrentliability$828$975$1,106$1,220$1,314$1,398Marketvalueofassets8498869029791,0261,075Funded%(w/accruedcontributions)104%91%85%82%80%85%PBGCpremiums1.10.32.22.42.72.2Contributions

January150.00.00.08.69.911.9

April150.00.08.69.911.928.9

July150.00.08.69.911.928.9

September1522.36.537.36.17.0103.1

October150.00.08.69.911.928.9Totalcontribution22.36.563.244.352.5201.6Example1:MinimumFundingAggregatecontributions: $390.4AggregatePBGCpremiums: $10.9養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第14頁P(yáng)roactiveStrategiesCurrentliability$828$975$1,106$1,220$1,314$1,398Marketvalueofassets8498869029731,0141,056Funded%(w/accruedcontributions)104%91%88%84%82%91%PBGCpremiums1.10.30.32.22.40.3Contributions

January150.00.00.07.78.610.4

April150.00.046.015.918.7129.2

July150.00.08.49.511.528.3

September1522.36.58.69.811.829.0

October150.00.00.00.00.00.0Totalcontribution22.36.563.042.850.5196.8Example2:PushbackquarterlycontributionsAggregatecontributions: $381.9AggregatePBGCpremiums: $6.5養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第15頁P(yáng)roactiveStrategiesCurrentliability$828$975$1,106$1,220$1,314$1,398Marketvalueofassets8498869029731,0141,159Funded%(w/accruedcontributions)104%91%88%84%90%90%PBGCPremiums1.10.30.32.22.40.3Contributions

January150.00.00.07.78.60.0

April150.00.046.015.918.70.0

July150.00.08.49.511.50.0

September1522.36.58.69.8110.671.6

October150.00.00.00.00.00.0TotalContribution22.36.563.042.8149.471.6Example3:AvoidDRCAggregatecontributions: $355.6AggregatePBGCpremiums: $4.5養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第16頁P(yáng)roactiveStrategiesCurrentliability$828$975$1,106$1,220$1,314$1,398Marketvalueofassets8499359489711,0291,158Funded%(w/accruedcontributions)109%96%88%85%90%90%PBGCPremiums0.30.30.30.30.30.3Contributions

January150.00.00.07.80.00.0

April150.00.00.015.911.40.0

July150.00.06.19.611.50.0

September1569.20.08.724.5109.772.0

October150.00.00.00.00.00.0TotalContribution69.20.014.757.8132.772.0Example4:AvoidPBGCvariablepremiumAggregatecontributions: $346.4AggregatePBGCpremiums: $1.8養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第17頁P(yáng)roactiveStrategiesConsultantsneedtoclarifypensionfundingdecisionsforclients.Theactuarialreporthasbecomeacompliancedocument,notaconsultingdocument.Theoldmodel(minimumandmaximum)hasbeenreplacedbyanewmodel(targetsandconsequences)forpensionfunding.Forecastsareessentialtoclientunderstandinganddecision-making.Ultimately,pensionfundingdecisionsshouldbelesscomplicatedthantheycurrentlyseemtoemployers.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第18頁P(yáng)roactiveStrategiesLong-termstrategicapproaches--determinethelong-termcostoftheplan(e.g.,level%ofpay)andfundthisamount,subjecttomin/maxconstraintspotentiallyreducesthevolatilityofannualcontributionrequirementsdramaticallydoesthisbyavoidingthe“feastorfamine”scenariosthatmostplansponsorshavebeenseeing.Areaofconcern:howdovariationsincontributionrequirementscorrelatetotheupsanddownsofthebusinesscycle?Ineconomictermsitisnotjusttheamountofrequiredcontributionsthatshouldbeofconcern,butthepotentialdisutilityofhavingtomakethosecontributionsatthewrongtime.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第19頁P(yáng)roactiveStrategiesMinimum

FundingTargetContributionsAnalysisshowsthattargetcontributionsinadvanceofrequirementsshouldreducethelevelandvariabilityoffuturecontributions.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第20頁P(yáng)roactiveStrategiesWhatdocompanies’actualfundingpolicieslooklike–totheextenttheyhavedevelopedone?90%ofsurveyedcompaniesreportedhavingsometypeoffundingpolicy,althoughtypicallytheseareunwritten/informal.Contributiontargetswithinthesepolicieswereasfollows34%expectedtopaytheminimumrequiredcontribution16%targetedtomaintaina90%fundedlevelforcurrentliability8%targetedtoavoidPBGCvariablepremiums6%setfundedleveltargetsbasedonPBO/ABOmeasures5%targetedtoavoidparticipantunderfundingnotices5%expectedtopaythemaximumdeductibleamount.

Source:TowersPerrinsurvey;115responses養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第21頁FundingReformIntermsofnear-termfundingrelief,Congressseemspreparedtograntthefollowing:Replacementof30-yearTreasurybondyieldwithacompositerateconsistingofhighqualitylongcorporatebondindicesaddsasmuchas1.0%tothe4-yearweightedaveragefor(note:thereissomeuncertaintyastohowTreasurywillimplementthenewrate).Otherlimitedreliefprovidedforairlines,steel,andmultiemployerplansponsors.Theseprovisionswillonlybeeffectivefortwoyears--throughYE.Thuscontinuingeffortstocraftmorepermanentfundingreformwillbenecessary--startingimmediately.養(yǎng)老基金目標(biāo)和戰(zhàn)略英文第22頁FundingReformWhatmightpermanentreformlooklike?TheTreasurydepartmenthasmadeproposalsalongthefollowinglines:Solvencymeasureswouldreflectsnapshotvaluesofassetsandliabilities,includinginterestratesbasedonayieldcurve.Thechangeswouldmakepensionfundingmoreresponsivetocapitalmarketconditionsandthevaryingeffectsofplandemographics.Therewouldbeincreaseddisclosurerequirementswithrespecttoplanfundedsta