map-ping out your pension plan’s future

7/31/2019 MAP-ping Out Your Pension Plans Future

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August 21, 2012

Matt Avery FSA, EA, MAAA

Director of Actuarial Services

Atssa Benefits, Inc.www.atessabenefits.com

MAP-ping Out Your Pension Plans FutureHow Funding Relief (MAP-21) Affects Your Plan Financially


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Agenda

Pension Funding Relief under MAP-21

PBGC Premium Increases under MAP-21

Other MAP-21 Impacts

Pension Case Study Planning for the Future

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The Pension Protection Act of 2006 (PPA) requires pension

plans to use market interest rates to determine plan liabilities.

The majority of plan sponsors use segment rates to value

pension liabilities.

MAP-21 provides relief to current low interest rate

environment.

MAP-21 optional for 2012, but required for 2013 and beyond.

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Current segment rates compared to 25-year average of spot

rates

25-year average then limited by min/max boundaries

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Year Minimum/Maximum

2012 90%/110%

2013 85%/115%

2014 80%/120%

2015 75%/125%

After 2015 70%/130%


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Example (Assume the following):

1st Segment Rate for 2012 is 2%

25 year average of short term spot rates is 6%

Applying the 90% minimum for 2012, the estimated floor forthe first segment rate would be 90% of 6%, or 5.4%

Therefore the actual first segment rate of 2% is limited to

5.4% for 2012

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5*Projected based on adjusted 24 month average rates published by IRS on 8/16/2012


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Relief Does Not Apply to the Following Liability Calculations:

Maximum deductible contribution amounts

Plan lump sum calculations

Excess assets for retiree health plan transfers

PBGC variable rate premium amounts

PBGC reportable events

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PBGC Premiums under MAP-21

Flat rate premium currently $35 per participant for 2012

Increased to $42 for 2013 and $49 for 2014 and beyond

Further inflation increases after 2014 (TBD)

Variable rate premium currently at 0.9% of unfunded vestedbenefits.

Increased to 1.3% for 2014 and 1.8% for 2015 and beyond

Further inflation increases after 2015 (TBD)

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Other MAP-21 Impacts

Additional Disclosures for Annual Funding Notice

Statement of use of modified interest rates

Statement that plan sponsors may contribute less

Table comparing pre/post MAP-21 funding requirements

DOL to issue model notice

Transfers of excess assets to fund retiree group term life

insurance

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Polling Question

Given that the MAP-21 funding Relief is optional for

2012 only, will you elect the relief for this year?

Yes No

Unsure

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Pension Case Study Planning for the Future XYZ Corporation sponsors the XYZ Corp. Pension Plan

Frozen defined benefit plan with 400 participants

Overall goal prior to relief is to maintain 80% funded on a PPA

basis

XYZ Corp. Pension Plan Valuation Assumptions

Funding Interest Rate - PPA segment rates (subject to MAP-21 relief)

Projected Annual Investment Return of 5%

FAS Discount Rate of 4.5%

FAS Expected Return on Assets (EROA) of 5.5%

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BEFORE

MAP-21


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Pension Case Study Planning for the Future XYZ Corp. Pension Plan 2012 Valuation BEFORE MAP-21

Funded Status (AFTAP) is 80%

ERISA Minimum Required Contribution (MRC) of $1.3 million

FAS expense of $935k

PBGC Premiums of $73k

How will MAP-21 impact the 2012 results?

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AFTER

MAP-21


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Pension Case Study Planning for the Future XYZ Corp. Pension Plan 2012 Valuation AFTER MAP-21

Funded Status (AFTAP) is 90% (10% increase)

ERISA MRC of $772k (over $500k decrease, or 40%)

FAS expense of $941k ($6k increase, or 1%)

PBGC Premiums of $73k (unchanged)

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Pension Case Study Planning for the Future XYZ Corp. Pension Plan 5 Year Projections Pre MAP-21

Investment return assumption of 5% per year

Total 2012 2017 ERISA MRCs $11.6 million

Total 2012 2017 FAS expense of $4.4 million

Total 2012 2017 PBGC Premiums of $465k

How will MAP-21 impact plan estimates for 2012 - 2017?

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Pension Case Study Planning for the Future XYZ Corp. Pension Plan 5 Year Projections* AFTER MAP-21

Total 2012 2017 ERISA MRC $9.2 million (about $2.4 milliondecrease, or 26%)

Total 2012 2017 FAS expense of $4.9 million (about $450k increase,

or 9%)

Total 2012 2017 PBGC Premiums of $718k (over $250k increase, or

35%)

*Projected based on adjusted 24 month average rates published by IRS on 8/16/2012

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Pension Case Study Planning for the Future Other considerations for XYZ Corp. Pension Plan

Use savings outside of the pension plan? Funding sooner for pre MAP-21 budgets?

Changing investment allocations?

Maintaining 80% funded ratio ignoring MAP-21?

Planning ahead is critical to take full advantage of relief

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Questions??

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Matt Avery FSA, EA, MAAA

Director of Actuarial ServicesAtssa Benefits, Inc.

[email protected]

858.673.3691 x123

www.atessabenefits.com

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