As an experienced advisor, we stand ready to guide Plan Sponsors through the complexities and everchanging landscape of pension plans. Below find valuable updates from our dedicated Defined Benefit Business Council.

Cash Balance Plans

Cash balance plans continue to garner interest from Plan Sponsors, including “term restarts”. Cash balance plans, when structured alongside a 401(k) plan, may allow plan participants the ability to defer significantly more dollars into a qualified plan versus a 401(k) plan alone.

 
A “term restart” involves terminating an original cash balance plan, while concurrently launching a new plan so participants can continue to maximize their tax-deferred savings. Participants’ distributions from the plan which is terminating are commonly rolled over to the participants’ IRA or 401(k) plan accounts, allowing participants to invest in a manner that meets their individual investment objectives.

Updates included within the SECURE Act 2.0 have made it easier for cash balance plans to convert the Interest Crediting Rate from a fixed rate to a market rate. Such a switch may help reduce the volatility of the plan’s funded status while also potentially allowing for more attractive investment returns.

It’s important for Plan Sponsors to review participant balances regularly to evaluate those that may be nearing the 415 limits or below the capital preservation floor.

Traditional Pension Plans

The FTSE Pension Discount Rate increased by 23 basis points (+0.23%) during the quarter, ending June at 5.35%. The rate is up 52 basis points (+0.52%) this year, resulting in overall lower liability valuations.¹ 

Higher interest rates and continued equity market strength has been an overall tailwind for Plan Sponsors.²

JP Morgan recently released a white paper analyzing developments with the 100 largest pension plans in the United States for 2023. Key findings in the report include:²

Source: ¹https://www.soa.org/sections/retirement/ftse-pension-discount-curve/
²https://www.msci.com/documents/10199/a71b65b5-d0ea-4b5c-a709-24b1213bc3c5

Pension Risk Transfer and Plan Termination 

The SECURE Act 2.0 directed the Employee Benefits Security Administration (EBSA) of the Department of Labor to review Interpretive Bulletin (IB) 95-1 which provides guidance for fiduciaries on the selection of the “safest available annuity provider” when undergoing PRT activity. In their report to Congress on June 24, 2024, EBSA concluded that it is not prepared at this time to propose amendments to IB 95-1. However, the report acknowledged the need for additional review noting that “some stakeholders are very concerned about developments in the life insurance industry that may impact insurers’ claims-paying ability and creditworthiness”.³ Fiducient Advisors will continue to provide updates and potential implications for Plan Sponsors

With favorable market conditions driving many plans to fully funded to over-funded territory, the PRT market continues to set records for activity. Per LIMRA, the first quarter set a record for both the number of deals as well as for the aggregate dollar value of liabilities transferred.⁴ 

Source: ³https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/secure-2.0/report-to-congress-on-interpretive-bulletin-95-1.pdf

⁴https://www.limra.com/en/newsroom/news-releases/2024/limra-u.s.-pension-risk-transfer-sales-post-record-high-first-quarter/

Litigation Update

In a win for plan fiduciaries, a lawsuit claiming fiduciaries of the New York City Employees’ Retirement System violated their fiduciary duty through their divestment of fossil fuel companies was recently dismissed. The court found that the plaintiffs failed to show that they suffered harm. 

Source: https://www.napa-net.org/news-info/daily-news/pension-plans-prevail-esg-divestment-suit

This report is intended for the exclusive use of clients or prospective clients (the “recipient”) of Fiducient Advisors and the information contained herein is confidential and the dissemination or distribution to any other person without the prior approval of Fiducient Advisors is strictly prohibited. Information has been obtained from sources believed to be reliable, though not independently verified. Any forecasts are hypothetical and represent future expectations and not actual return volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Fiducient Advisor research and professional experience and are expressed as of the date of this report. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is risk of loss.

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