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Putting the Pieces Together –
Understanding Changes Affecting Pension
De-Risking and Settlement Strategies
Ari Jacobs, Chris Birch, Barb Hogg, Aon Hewitt
Tami Kucera, USG Corporation
Pension Settlements: Why? Why Now?
Today’s agenda
Understand what is
prompting increased interest
in pension settlements
Share perspectives on what
drives success
Hear about a successful
lump-sum window
Respond to your questions
Funded Status
Mortality Basis
PBGC Premiums
2 Retirement Webinar Series | March 19, 2014
Funded Status has Improved
Funded Ratio (based on the S&P 500)
Source: Aon Hewitt Pension Risk Tracker, https://pensionrisktracker.aon.com/
1/1/13
77%
4/1/13
82%
7/1/13
85% 10/1/13
89%
1/1/14
91%
13% Increase in funded
status from the end
of 2012 through
mid-March
3 Retirement Webinar Series | March 19, 2014
People are Living Longer
Society of Actuaries proposed new mortality tables in February 2014
IRS could require the new tables as early as 2016
Estimated
increase in
lump sum for a
45-year-old
participant
5%-
12%
80.2 81.7
82.6
84.6
86.6 87.9
84.3
86.3 85.2 86.4
88.8 90.1
The 1980s The 1990s The 2000s Today:Old Basis
Today:New Basis
In 15 Years
Male
Female
Life expectancy of a person age 65
Note: Assumes December 2013 417(e) interest rates
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The Bipartisan Budget Act of 2013 contains significant PBGC premium
increases
Second major premium increase in the last two years (MAP-21)
2014 2016 2026
(projected)
Flat rate (per person)
$49 $64 $80
Variable rate (per $1K unfunded)
$14 $29 $36
Carrying Costs are Increasing
Present value of future PBGC premiums
for a 45-year-old participant
Note: Recognizes flat rate premiums only
$1,500
Note: Assumes December 2013 417(e) interest rates and 2.3% inflation
5 Retirement Webinar Series | March 19, 2014
Settlement Strategies Gaining Traction
Source: Aon Hewitt 2014 Hot Topics in Retirement
7 Retirement Webinar Series | March 19, 2014
Lump-Sum Window Annuity Purchase
Plan sponsor reporting in late 2013
12% completed recently
+
14% very likely to do in 2014
3% completed recently
+
3% very likely to do in 2014
Settlement Strategies Gaining Traction
Lump-Sum Window Annuity Purchase
Plan sponsor reporting in late 2013
12% completed recently
+
14% very likely to do in 2014
3% completed recently
+
3% very likely to do in 2014
Updates in March 2014
26% planning to run a lump-
sum window in next 2 years +
43% not sure, but considering
5% planning to purchase
annuities in next 2 years +
26% not sure, but considering
Source: Aon Hewitt 2014 Pension De-Risking Pulse Survey
8 Retirement Webinar Series | March 19, 2014
Plan Sponsors Planning a Lump-Sum Window
Influence of PBGC premium increases and proposed mortality tables on
decision making
18% Decided to move
forward
13% Expanded the
eligible group
3% Accelerated
timing
9 Retirement Webinar Series | March 19, 2014
Source: Aon Hewitt 2014 Pension De-Risking Pulse Survey
Influences on Plan Sponsor: Barriers
Lump-Sum Window
32%
20%
Accounting
Staff time
32% Cash impact
29% Funded status
28% Interest rates
26% Ongoing feature
10 Retirement Webinar Series | March 19, 2014
Source: Aon Hewitt 2014 Pension De-Risking Pulse Survey
Influences on Plan Sponsor: Barriers
Annuity Purchase
72%
15%
34%
33%
23%
20%
Annuity cost
Other
Accounting
EE reaction
Process
Unions
11 Retirement Webinar Series | March 19, 2014
Source: Aon Hewitt 2014 Pension De-Risking Pulse Survey
Offer to all the terminated
vested participants or a subset
(ex: up to a $ limit)
One-time opportunity
Limited period (the “window”)
Variations on a Theme
Other approaches to lump sums
Small
amount
“sweeps”
Permanent
feature (perhaps with
$ limit)
Participant
reminders (if lump sum
available)
Retiree
windows
Typical
lump-sum
window
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What Does a Lump-Sum Offer Mean?
No longer employed by
plan sponsor ♦
Lump sum of $13,200
instead of $300/month
in 20 years ♦
Ability to consolidate
retirement savings ♦
Voluntary!
Male
Age 45
Pension: $300/month
at age 65
Liability of $13,200 ♦
PBGC premiums and
administrative costs:
Present value of
$1,900 to $3,000 ♦
Expected liability increase
of $700 to $1,600 from
proposed mortality tables ♦
Plus associated pension
risk
For the sponsor For the individual
Note: Assumes December 2013 417(e) interest rates and 2.3% inflation
14 Retirement Webinar Series | March 19, 2014
Plan Sponsor Experience
Source: Data from 57 lump-sum windows covering approximately 250,000 participants, See Aon Hewitt’s 2013 whitepaper
“Pension Settlements Through Lump-sum Windows” for additional information.
Lump-Sum Elections
54% On average
46% Dollar weighted
Direct Rollovers
55% of lump sums
68% of eligible dollars
Windows in 2013
Windows in 2012
0% 25% 50% 75% 100%
Lump-Sum Election Percentage by Plan Sponsor
15 Retirement Webinar Series | March 19, 2014
Getting a Response: Process Matters
Preparation Participant
Interaction + Positive
Outcomes =
Election
percent
Financial
impact
Informed
participants Compliance
Reduced
risk
Very little
“noise”
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Getting a Response: Process Matters
Preparation
Coordination Design Business case In general
Build a detailed
project plan
Plan for
reporting needs
Prepare for
needed liquidity
Search for
participants
Clean up data
Calculate
accrued
benefits
Clarify
objectives
Receive buy-in
Estimate
financial
impacts
Consider impact
of decisions
Involve counsel
Determine
“go/no go” date
Participant
Interaction + Positive
Outcomes = Preparation
17 Retirement Webinar Series | March 19, 2014
Getting a Response: Process Matters
Participant
Interaction
Mailings
Announcements
Election materials
Reminders
Service Center
Answer questions
Process elections
Make outbound
calls
Other Resources
Multi-channel
elections
Financial guidance
Alternative touch-
points
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Participant
Interaction + Positive
Outcomes = Preparation Participant
Interaction + Positive
Outcomes = Preparation
USG Corporation Implements
Successful Lump-Sum Window
Tami Kucera, Senior Manager, Employee Benefits
Background
Company with 100+ year history
Headquarters in Chicago, IL
Manufacturer and distributor of building
materials for the construction and
remodeling industries
– Leading manufacturer and distributor of
wallboard, joint compound and related
products in North America
– Global leader in the manufacturing of
ceiling suspension systems and
recognized as the premier acoustical
panel and specialty ceiling systems
innovator
Union-free manufacturing facilities
Rich history of innovation with more
1,100+ patents
20 Retirement Webinar Series | March 19, 2014
USG Retirement Programs
Hired through 2010 Hired in 2011 or later
Final average pay pension plan Cash balance plan
At retirement At termination At retirement or termination
Pension plan with employee contributions
Lump sum or
annuity
Note: About 80%
of retirees take
the lump-sum
payment
No lump-sum
option
Return of
employee
contributions
only
Lump sum or annuity
21 Retirement Webinar Series | March 19, 2014
Deciding to Offer the Lump-Sum Option
Considerations in making a lump-sum offer
Well-funded pension
USG often contributed more than minimum
Funded
status
Focus window on
terminated vested
participants without
a lump-sum option
About 4,200 total
Population
Save on PBGC premiums (including increases)
Avoid cost increases due to new mortality basis
Future
costs
22 Retirement Webinar Series | March 19, 2014
Lump-Sum Window Outreach
1
Announce
2
Inform
3
Remind
Introduce opportunity
Request address
verification for those
without verified address
(about 30% received a
separate version)
Inform term vesteds of
lump-sum amount
Provide education
around options
Describe how to make
an election
Send two reminders
about the window
Make calls to those
who had started and
not completed process
23 Retirement Webinar Series | March 19, 2014
Expectations Met and Then Some
45% participated in the window
representing $67M in lump sums
97% chose the lump
sum; 3% elected
an annuity
payment
58% participated
among those
with a verified
address
4% started, but did
not complete the
election process
24 Retirement Webinar Series | March 19, 2014
Contact Us
Retirement@aonhewitt.com
Ari Jacobs
Global Retirement Solutions Leader
Aon Hewitt
Chris Birch
Associate Partner
Aon Hewitt
Barb Hogg
Partner
Aon Hewitt
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About Aon Hewitt
Aon Hewitt empowers organizations and individuals to secure a better future through
innovative talent, retirement and health solutions. We advise, design and execute a wide
range of solutions that enable clients to cultivate talent to drive organizational and personal
performance and growth, navigate retirement risk while providing new levels of financial
security, and redefine health solutions for greater choice, affordability and wellness. Aon
Hewitt is the global leader in human resource solutions, with over 30,000 professionals in
90 countries serving more than 20,000 clients worldwide. For more information on Aon
Hewitt, please visit www.aonhewitt.com.
© 2014 Aon plc
This document is intended for general information purposes only and should not be construed as advice or opinions on
any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of
publicly available information. The content of this document is made available on an “as is” basis, without warranty of any
kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from
any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document.
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