Pension Plan De-Risking: What Every Employer Should Know
Over the years, the continuously evolving regulatory and economic backdrops of pension plans have altered how plan sponsors across the globe think about their Defined Benefit (DB) plans. This global trend has created complex financial and regulatory risks forcing plan sponsors to "de-risk" DB plans by offering lump-sum distributions to retirees instead of the typical annuity distributions.
In this LIVE Webcast, a seasoned panel of thought leaders and professionals assembled by The Knowledge Group will provide the audience with an in-depth analysis of the fundamental framework of Pension Plan De-Risking. Speakers will present key issues and practical tips for employers to understand all the important aspects of this significant topic. Going beyond the basics, speakers will present their expert thoughts and opinions on how employers can maximize the benefits of de-risking pension plans.
Key topics include:
- Pension De-Risking – Fundamental Framework
- Pension Plan - Challenges and Opportunities
- Implementing Effective De-Risking Framework
- Pension Plan De-Risking Approaches and Considerations
- Advantages and Disadvantages of Pension De-Risking
- Recent Trends and Developments
Christine Lutgens, Partner
Kramer Levin Naftalis & Frankel LLP
Background reasons for de-risking
- impact of pension expense on corporate bottom line (both GAAP and IAB)
- changes in funding rules affecting cash flow
- ever-increasing PBGC premiums
- immunize investment portfolio, try to match asset duration with liability
- susceptible to market changes and liability increases affected by mortality/interest rate changes
- only addresses volatility
- eliminate plan liabilities by cashing out and /or annuitizing accrued benefits, while still maintaining plan
- cashouts must be limited to deferred vest participants
- IRS about-face on cashing out retirees in pay status
- restrictions on paying employees before NRD
- success rate may depend on normal availability of lump sum
- liabilities not able to be cashed out could be annuitized by purchase of a group annuity contract
- cashouts must be limited to deferred vest participants
- plan termination
- although plan termination is a settlor decision, implementation is subject to fiduciary rules
- need to consider administrative expense (for filings, notices and special benefit calculations and related legal and actuarial fees} incurred in termination process
- since all plan liabilities have to be satisfied either by direct cash payment of lump sums or coverage under a group annuity contract (or a combination of both), plan sponsor may have to be prepared to make a substantial contribution to fill the gap between what the plan assets will cover and what the cash payments and annuity purchase will cost
Particular practical/legal issues associated with different approaches
- identifying necessary tasks, responsible parties both internal and external
- establishing a realistic timeline
- adopting procedures for tracking deliverables and progress
Jaime Packer, Associate Vice President and Actuary
USI Consulting Group
- Lump sum window versus annuity purchase (as part of plan termination or outside of a plan termination)
- Pricing, groups covered, timing, parties involved in preparation and decision.
- Impacts of derisking on ongoing plan costs (including discussion of minimum required contribution, accounting impacts, PBGC premiums, and discussion of mortality tables)
- Obstacles to derisking (e.g. quality of data, locating participants, participant perception, asset allocation/liquidity, etc.)
- Items to consider during a lump sum window (e.g. participants with balances under $5k, immediate annuity requirement, offering to entire population versus subset and possible discrimination issues, timing, etc.)
- Lump sum window implementation and process (can be a basic overview or more detailed but want to get across the time commitment involved and interplay of the plan sponsor, legal counsel, and plan actuary)
Maureen J. Gorman, Partner
Mayer Brown LLP
- Fiduciary issue associated with annuitizations (both buy-outs and terminations)
- Line between fiduciary and settlor functions, and general roles and responsibilities of the many parties in one of these transactions
- Role of independent fiduciary (Reasons for retaining, Scope of engagement, varying roles in different deal structures)
- Special issues for buy-out transaction by underfunded plan
- 95-1 standard –
- Selected Insurance regulatory issues
- Interplay of combined lump sum window and “clean up annuitization”
- Pricing issues
- Timing issues
Ruth S. Marcott, Shareholder
Legal Challenges to Pension De-risking
- Lee v. Verizon - A case which provides a good example of potential claims in litigation
- A case with a tortured history, plus lessons on standing under the U.S. Supreme Court Spokeo decision
- The case has been dismissed, but provides a good learning tool for de-risking approaches in the future
- Failure of SPD to properly communicate possible de-risking strategies.
- Failure in communication generally under ERISA
- Breach of Fiduciary Duty
- By retirees who received annuities – they lost ERISA protection
- By participants left in the plan – Excessive cost to the plan with no benefit to them
- ERISA discrimination claims
- Are claims any different depending on the de-risking strategy chosen?
- PBGC Compliance
- Additional reporting is required
- PBGC opines millions of participants will be subject to de-risking
- Regulatory Overview and Compliance
- IRS will review for compliance with its notices.
- DOL involvement?
Who Should Attend:
- Benefits Managers
- Compensation and Benefits Consultants
- Employment Law Attorneys
- Employee Benefits Attorneys
- Retirement Plan Financial Professionals
- Retirement Plan Sponsors
- Human Resource & Benefits Personnel
Maureen Gorman is a partner in the Palo Alto office of Mayer Brown who focuses on executive compensation and employee benefits matters. Her work includes advising on tax and benefit issues in both domestic and international contexts, counseling on ERISA fiduciary issues, controversy work involving IRS and DOL audits, and all nature of transactional work, including de-risking transactions and M&A. Her work frequently requires interdisciplinary efforts with corporate, securities and tax specialists.
Prior to joining Mayer Brown in 1986, Maureen worked with the Joint Committee on Taxation, in Washington, DC, and with a Washington law firm. Between 1981 and 1982, she served as Law Clerk to The Honorable Warren W. Eginton, US District Court for the District of Connecticut. In addition, she has held faculty positions as Adjunct Professor with the University of Chicago Law School (Spring 1992) and the Boston University Law School (Fall 1991). Maureen has been listed in the publication Best Lawyers in America for over a dozen years.
Maureen Gorman is a partner in the Palo Alto office of Mayer Brown who focuses on executive compensation and employee …
Ruth Marcott, a shareholder at Felhaber Larson in Minneapolis practices commercial law, specializing in employee benefits advice and litigation, health information privacy, false health claim act issues, business ownership disputes and specialty issues in commercial transactions and disputes.
In the area of benefits, she provides advice on compliance with federal and state benefits laws (ACA, IRC, ERISA, MPPAA) governing qualified retirement plans (including ESOPs and pension plans), non-qualified plans, health plans and welfare plans. She advises numerous Taft-Hartley Multiemployer Plans, as well as employer-sponsored plans. She litigates ERISA actions, fiduciary claims, multiemployer pension withdrawal liability arbitrations, and executive compensation claims. She defends audits or investigations by the DOL or the IRS. .
Ruth is a graduate of the University of St. Thomas and the University of Minnesota Law School.
Ruth Marcott, a shareholder at Felhaber Larson in Minneapolis practices commercial law, specializing in employee benefits advice and litigation, health …
Ms. Lutgens has more than thirty years of wide-ranging experience in benefit and executive compensation matters, including advising on design, administrative and fiduciary issues under all types of qualified and non-qualified pension and profit sharing plans, ESOPs, welfare plans, executive compensation arrangements and equity plans, both in day-to-day business operations and in complex corporate transactions.
Ms. Lutgens has written and spoken on a variety of benefit topics, including the practical implications of section 409A for employment agreements and severance arrangements, plan loans, benefit issues in bankruptcy, section 401(k) compliance issues and issues in the acquisition of a business. She also taught the third year seminar on employee benefits at the University of Chicago Law School for many years before joining Kramer Levin.
Ms. Lutgens was recognized by New York Super Lawyers (2006-2016).
Ms. Lutgens has more than thirty years of wide-ranging experience in benefit and executive compensation matters, including advising on design, …
Jaime Packer is an Associate Vice President and Actuary in USI Consulting Group’s Defined Benefit department with 10 years of pension experience. Jaime currently provides actuarial and consulting services for a number of defined benefit retirement plan sponsors. Jaime has strong knowledge and experience with funding and account standards, including the Pension Protection Act of 2006 and all subsequent changes/relief, government filings, nondiscrimination testing, plan redesign, cost/benefit analysis, deterministic projections, and plan terminations.
Jaime graduated from the University of Connecticut with a BA degree in Actuarial Science. She is an Enrolled Actuary, Associate of the Society of Actuaries, and Member of the American Academy of Actuaries and is currently working toward additional credentials.
Jaime Packer is an Associate Vice President and Actuary in USI Consulting Group’s Defined Benefit department with 10 years of …
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Method of Presentation:
Experience in business or employment practice
NASBA Field of Study:
Management Services - Technical
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About Mayer Brown LLP
Mayer Brown is noted for its commitment to client service and ability to assist clients with the most complex and demanding legal and business challenges worldwide. The firm serves many of the world’s largest companies, including a significant proportion of the Fortune 100, FTSE 100, CAC 40, DAX, Hang Seng and Nikkei index companies and more than half of the world’s largest banks. Mayer Brown provides legal services in areas such as banking and finance; corporate and securities; litigation and dispute resolution; antitrust and competition; US Supreme Court and appellate matters; employment and benefits; environmental; financial services regulatory and enforcement; government and global trade; intellectual property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management.
About Felhaber Larson
Felhaber Larson is a full-service law firm located in Minneapolis & St. Paul with a more than 70-year history of serving clients. We offer a full range of services, with a strong emphasis on employee benefits, labor & employment law, business law and transactions, real estate, business, health law and civil litigation.
The Felhaber brand is Small Firm Relationships, Large Firm Impact. That's the promise we deliver to all of our clients who range from Fortune 500 companies to small businesses, start-ups and individuals.
About Kramer Levin Naftalis & Frankel LLP
Kramer Levin Naftalis & Frankel LLP is a premier, full-service law firm with offices in New York, Silicon Valley and Paris. Firm lawyers are leading practitioners in their respective fields. The firm represents public and private companies — ranging from Global 1000 to middle-market and emerging-growth companies — across a broad range of industries, as well as funds, institutions and individuals.
About USI Consulting Group
USI Consulting Group (USICG) is one of the nation’s largest retirement and benefit consulting and administration firms servicing mid-sized organizations and is a wholly-owned subsidiary of USI Holdings Corporation (“USI”) – the third largest privately-held insurance broker in the United States.
For more than 35 years, organizations have relied on USICG to help their employees successfully plan and invest for retirement and to assist with the tasks required to enroll and administer their health and welfare employee benefit plans. USICG’s team of highly skilled professionals provides specialized expertise in retirement and employee benefit plan design, administration, consulting, investments, legal & regulatory compliance and employee communications for approximately 1,400 clients nationwide. USICG’s clients consist of public and private sector employers, not-for-profit organizations, as well as Fortune 500 companies.