PLANSPONSOR - August/September 2018 - 37

approximately 5%.
According to Solomon, DB plan
sponsors may want to consider voluntary
pre-funding of their plans. Why? Tax
reform may generate repatriated cash-it
offers a one-time opportunity to bring
money from overseas at a decent tax rate.
Sponsors also have an opportunity, this
year only, to make a contribution and
deduct it at the 2017 35% corporate tax
rate. Tax reform changed the corporate
tax rate to 21% as of this January 1, so the
value of a pension contribution deduction
will go down. " We think there is enough
IRS authority to support that these accelerated
contributions can count as 2018
contributions, " she said.
Other reasons Solomon cited for
pre-funding are that continued pension
volatility gets tiresome; pre-funding can
be preparation for de-risking; and plan
sponsors can avoid the PBGC variable rate
premium.
There are challenges to consider with
pre-funding a DB plan: weighing the cost
against other business priorities; resisting
the desire to invest in growth assets while
hoping that funding levels improve; and
risking creating trapped surplus funds.
" For years, companies defaulted to
the minimum required contribution,
and, around 2013, long-term interest rates
went up, pension deficits started to close,
and plan sponsors got confident, so they
didn't think about contributing more to
their plans, " Solomon said.
" It's time to sit down and think of a
funding strategy. How much of your plan
will be closed by asset growth or interest
rate changes? How much in contributions
should you make? Identify the appropriate
funding level and what you plan to
do with your DB plan: freeze it, close it,
terminate it or transfer risk. "
Aside from making a cash contribution,
Solomon said, sponsors could
borrow to fund. " It replaces variable/
volatile debt[-the type associated with
underfunded pensions-]with a fixed,
predictable obligation, " she said. " Plan
sponsors can compare costs of borrowing
with the PBGC variable rate premium. "
She added the caveat, however, that, while
borrowing to fund is popular now, this
may not continue because deductions on
interest will change.
DB plan sponsors can also make
in-kind contributions of real property,
employer stock, employer notes and
Treasury bills. In the first three cases, DB
plan sponsors sell property and lease it
back to the plan. The plus of using these
strategies is that plan sponsors can use
assets they have lying around and avoid
spending cash. " It's a great strategy if the
property is paid for and is heavily depreciated, "
Solomon observed. -Rebecca Moore
Benchmarking
Retirement Readiness
Why do plan sponsors need to take action
to improve workers' retirement readiness?
Tina Wilson, senior vice president and
head of investment solutions innovation
at MassMutual, said retirement readiness
affects an employer's bottom line in a very
direct way. Employees unable to retire on
time due to a lack of financial assets tend
to have greater health care and disability
claims or worker compensation claims.
This can negatively affect an employer's
balance sheet.
For many sponsors, improving retirement
readiness will mean making decisions
for workers, likely by adopting automatic
features. Auto-enrollment, autoescalation
and more aggressive qualified
default investment alternatives (QDIAs),
for instance, can help boost retirement
readiness, session panelists agreed.
Lynda Abend, chief data officer at
John Hancock Retirement Plan Services,
suggested adding a match feature to
encourage maximum participant saving,
rather than auto-enrolling employees at a
3% default rate. " Be aggressive with autoenrollment, "
she said.
While these tools contribute to
retirement readiness, said John Doyle,
senior vice president of defined contribution
(DC) strategies at American Funds,
plan sponsors must also consider their
pre-retirees' health care costs and what
features the plan could implement to estimate
those. As participants contribute
AUDIENCE POLL
Do you worry about conflicts of
interest if a current provider starts
to offer financial wellness services
for your participants?
n Yes
n No
60.4%
39.6%
toward retirement, they should be shown
how future medical expenses could affect
retirement income.
Relying on statistics only to decide
plan design, plan features and participant
communications has distinct limitations,
said panelists. Doing that will
likely impede retirement readiness,
Doyle observed. Instead, use a qualitative
approach-e.g., targeting education.
" Communications is really the key
part there, " said Jeff Fister, senior relationship
manager with ADP. " And basic
education is important. Don't make the
assumption that your employees know
what they need to know when it comes to
getting themselves ready for retirement. "
Abend said the first step is to look at
recordkeeping statistics and break your
participants into groups-say, according
to age, service, location, compensation,
etc. Then ask the participants in each how
they are acclimating to the plan design.
The employer can, in turn, give its analysis
to the recordkeeper.
A recurring question is how much
guidance sponsors can offer before doing
so becomes a potential fiduciary liability.
According to Wilson, as long as sponsors
act with their participants' best interest in
mind, they should be reassured.
Doyle said, " Influence what you can.
Focus on getting people into the plan and
on saving the right amount of money. "
-Amanda Umpierrez
PLANSPONSOR.com August-September 2018 37
http://www.plansponsordigital.com/plansponsor/august-september_2018/TrackLink.action?pageName=37&exitLink=http%3A%2F%2FPLANSPONSOR.com
PLANSPONSOR - August/September 2018

Table of Contents for the Digital Edition of PLANSPONSOR - August/September 2018
