Corporate pension plan funding levels flatline in 2016

Great article from Employee Benefits Advisor about Corporate pension plan funding by Phil Albinus

The stock market may have soared after the news that Donald Trump won the White House and plans to cut taxes and regulations, but the pension funded status of the nation’s largest corporate plan sponsors remains stuck at 80%. This figure is roughly unchanged for 2014 and 2015 when the status rates were 81%, according to a recent analysis conducted by Willis Towers Watson.

In an analysis of 410 Fortune 1000 companies that sponsor U.S. defined benefit pension plans, Willis Towers Watson found that the pension deficit is projected to have increased $17 billion to $325 billion at the end of 2016, compared to a $308 billion deficit at the end of 2015.

“On the face of it, [the 2016 figures of 80%] looks pretty boring. For the last three years the funding levels were measured around 80% and it doesn’t look that interesting,” says Alan Glickstein, senior retirement consultant for WTW. “But one thing to note is that 80% is not 100%. To be that stagnant and that far away from 100% is not a good thing.”

In fact, 2016’s tentative figures, which have yet to be finalized, could have been worse.

According to Glickstein, the 2016 figure hides “some pretty dramatic movements” that occurred during the unpredictable election year. “Prior to the election and due to the significant changes to equities and other asset values after the election, this number would have been more like 75%” if Trump had not won, he says.

“That is the interesting story because we haven’t been as low as 75% really ever in the last 20 years,” Glickstein says.

Fortune 1000 companies contributed $35 billion to their pension plans in 2016, according to the WTW research. This was an increase compared to the $31 billion employers contributed to their plans in 2015 but still beneath the contribution levels from previous years. “Employer contributions have been declining steadily for the last several years partly due to legislated funding relief,” according to Willis Towers Watson.

Despite these dips, total pension obligations increased from $1.61 trillion to $1.64 trillion.

Why are U.S. companies slow to fund their own pension plans, especially when in 2006 and 2007 the self-funded levels were 99% and 106% respectively?

“In prior years, plan sponsors put lots of extra contributions into the plans to help pay off the deficit, and investment returns have been up and the equities the plans have invested in have helped with that we haven’t been able to move this up above 80%,” Glickstein says.

That said, many American corporations are sitting on significant amounts of cash but appear not to be putting money into their retirement plans.

“We have seen companies contributing more to the plans in the past, but each plan is different and each corporation has their own situation. Either a company is cash rich or it is not,” Glickstein says.

“With interest rates being low and the deductions company get for their contributions, for a lot of plan sponsors it has been an easy decision to put a lot of money into the plan,” he says.
“And there are plenty of rewards for keeping premiums down by increasing contributions.”

Further, a new Congress and president could have an impact on corporate contributions especially if new corporate tax codes are enacted.

The broad initiatives of a new administration in the executive branch and legislative branch will have an impact, says Glickstein.

“With tax reforms, the general thrust for corporations and individuals is we are going to lower the rates and broaden the underlying tax base. So for pensions, the underlying tax rates for pensions is probably going to be lower and if [Congress gets] tax reforms done and they lower the corporate rate in 2017, and even make it retroactive,” Glickstein speculates. He predicts that some plan sponsors will want to contribute much more to the 2016 tax year in order to qualify for the deductions at the higher rates while they still can.

“There is a short-term opportunity potentially to put more money in now and capture the higher deduction once tax reform kicks in,” says Glickstein. “And with an 80% funded status, there is plenty of room to put more money in than with an overfunded plan.”

See the original article Here.


Albinus P. (2017 January 9). Corporate pension plan funding levels flatline in 2016[Web blog post]. Retrieved from address

IRS Announces 2015 Retirement Plan Contribution Limits


On October 23, 2014 the Treasury Department announced cost-of-living adjustments affecting dollar limitations for pension plans and retirement accounts for tax year 2015. The following is a summary of the changes that impact employees:

401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plans

  • The elective deferral (contribution) limit increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in these plans increased from $5,500 to $6,000.

Individual Retirement Arrangements (IRAs)

  • The limit on annual contributions remains unchanged at $5,500.
  • The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Simplified Employee Pension (SEP) IRAs and Individual/Solo 401(k)s

  • Elective deferrals increase from $52,000 in 2014 to $53,000 in 2015, based on an increased annual compensation limit of $265,000, up from $260,000 in 2014.
  • The minimum compensation that may be required for participation in a SEP increases from $550 in 2014 to $600 in 2015.

SIMPLE (Savings Incentive Match Plan for Employees) IRAs

  • The contribution limit on SIMPLE IRA retirement accounts for 2015 is $12,500, up from $12,000 in 2014.
  • The SIMPLE catch-up limit is $3,000, up from $2,500 in 2014.

Defined Benefit Plans

  • The basic limitation on the annual benefits under a defined benefit plan is unchanged at $210,000.

Other Changes

  • Highly-compensated and key employee thresholds: The threshold for determining “highly compensated employees” increases from $115,000 to $120,000 in 2015; the threshold for officers who are “key employees” remains at $170,000 for 2015.
  • Social Security Cost of Living Announcement: In a separate announcement, the Social Security Administration increased the Taxable Wage Base from $117,000 in 2014 to $118,500.
    • The maximum “Old Age, Survivor and Disability Insurance” (OASDI) tax will be $7,347 for both employers and employees; and
    • Hospitalization Insurance (Medicare) tax continues to apply to all wages.

The IRS pension plan limits announcement with more details is available here.
The Social Security Administration Fact Sheet outlining the 2015 changes can be found here.


ERISA Bonding - Not as Easy as it Looks

Separating ERISA bonds from fiduciary liability insurance


By Michael J. Moody, MBA, ARM

The Employee Retirement Income Security Act (ERISA) has been the law of the land since 1974, with regard to employee benefits. Its specific purpose is to protect the assets of millions of American workers so that funds are available when they retire. It's a federal law that, in essence, sets minimum standards for private company pension plans. Most of its requirements took effect on January 1, 1975. While it does not require corporations to create pension plans, it does establish minimum standards for those that do start pension plans.

For the most part, the key sections of the law have remained as they were in 1975. One section (Section 412) has been a source of concern for employers and their insurance agents because it deals directly with the Act's bonding requirements. In response to numerous requests, the Department of Labor, which oversees ERISA, published a Field Assistance Bulletin (#2008-04) that addresses a number of issues surrounding the bonding requirements. While the Bulletin is helpful in understanding the requirements, it was not meant to change any existing parts of Section 412. The Bulletin provides a set of 42 questions and answers that address many of the areas where employers have requested further clarification.

ERISA Bonding 101

At the most basic level, the bonding requirements are pretty straightforward. The Act, for example, requires that "every fiduciary of an ERISA-covered employee benefit plan and every person who handles funds or other property of such plans must be covered by a bond." There are, however, a number of exceptions to this requirement, as there are with most of the other specific requirements and, as such, are beyond the scope of this article. What follows, however, are a number of requirements that generally apply in all situations.

Bond limits must be issued for at least 10% of the amount of the funds handled, subject to a minimum limit of $1,000 per plan and a maximum of $500,000 per plan.

Several other points to keep in mind regarding the bonding requirements:

• Bonds cannot be obtained from just any bonding or insurance company. They must be placed with a surety company or reinsurer that is listed by name on the IRS's Listing of Approved Sureties as noted in IRS Department Circular 570.

• No plan or party-in-interest may have any control or significant financial interest in the surety or reinsurer, or in an agent or broker who arranges for the bond.

• Bonds must be written for a minimum of one year. Additionally, the bond must also have a one-year period after termination to discover losses that occurred during the original term of the bond.

• Coverage from the bond must be from the first dollar of loss; thus, the bond cannot have a deductible feature.

• An employee benefit plan can be insured on its own bond, or it can be added as a named insured to an existing employer bond as long as it satisfies ERISA's minimum requirements.

Other than the requirements noted above, the DOL allows quite a bit of flexibility with the bond. For example, a plan may be covered under a single bond or one bond that covers multiple plans. Permissible bond forms can range from individual, named schedule, position schedule or even a blanket bond.

Potential trouble spots

One area of considerable confusion that has continued to exist since the original Act was passed is the difference between an ERISA bond and fiduciary liability insurance. ERISA bonds are in fact fidelity bonds that protect the plan against fraud or dishonesty by individuals who handle plan assets. These bonds are a specific requirement of the ERISA legislation. On the other hand, fiduciary liability insurance generally protects the employer and/or fiduciaries from losses due to a breach of fiduciary duty. While fiduciary liability insurance is not a requirement under ERISA, many employers have chosen to provide this important coverage in their corporate insurance portfolio. To complicate the situation further, the insurance industry offers both the bond and fiduciary liability coverage under a single policy. While this type of comprehensive protection is very useful, it needs to be remembered that only the bond is required under ERISA. Additional coverages are available at the discretion of the employer.

Due in large part to the types of risks involved, there are few risk mitigation strategies that can be employed to lower the risk of loss. However, one method of risk mitigation that is being used and suggested by some consultants revolves around "credentialing" of all internal personnel and outside service providers. Typically this approach will require an approval and adoption of a written policy statement. The key element would be conducting criminal background checks and other prudent investigations to reconfirm the suitability of individuals serving in fiduciary positions or otherwise acting in a capacity covered by ERISA's bonding requirements. Care should be taken to comply with the applicable notice and consent requirements for conducting third-party background checks under the Fair Credit Reporting Act and other applicable laws.

While this may initially appear to be overkill, it should be remembered that ERISA generally prohibits individuals convicted of certain crimes from serving as plan fiduciaries. Further, it also prohibits plan sponsors, fiduciaries or others from knowingly hiring, retaining, employing or otherwise allowing these convicted individuals to handle plan assets for the 13-year period after the later of their conviction or the end of their imprisonment.

Additionally, the credentialing process should also include a review that verifies the sufficiency and adequacy of the bonding that is in effect for both internal personnel as well as outside service providers. Unless a service provider can provide a legal opinion that adequately demonstrates that an ERISA bonding exemption applies, plan sponsors and fiduciaries should require the third-party service provider to provide proof of appropriate bonding that is in compliance with ERISA and other appropriate laws.


While there are some exceptions to ERISA's bonding requirements, the fact remains that a bond is required for every pension plan. The bond must extend coverage to those persons whose position requires them to come in direct contact with or exercise discretion over plan assets. Further, the bonds must be in amounts and form acceptable to the DOL. They must comply with all the provisions as outlined in Section 412 of the ERISA legislation.

Fiduciary liability insurance is not required by ERISA, but it can provide agents and brokers with an excellent opportunity to broach the subject with an employer. Losses following the recent financial crisis have increased, and today's fiduciary liability policies offer a variety of coverage enhancements and can provide an employer with a number of advantages, while covering many gaps in their corporate insurance programs. Becoming a key knowledge source for employers in a narrow area such as this can be a real door opener for any agency.