PLANSPONSOR - October/November 2019 - 23

STATEMENT OF OWNERSHIP,
MANAGEMENT AND CIRCULATION
DB Plans and Interest Rates
THE main funding challenges that
defined benefit (DB) plans currently
face are the volatility of equity markets
and the late summer's sharp interest
rate decline, says Gordon Young, senior
director, retirement, at Willis Towers
Watson. Through the end of July, interest
rates for both Treasury and high-quality
corporate bond yields decreased to their
lowest levels since the global financial
crisis of 2008, he notes. Then, in August,
the 30-year Treasury yield dropped below
2%, and the Merrill Lynch AA-AAA 10+
index dropped below 3%-both historically
low levels.
Both public and corporate DB
plan funding have suffered as a result.
Goldman Sachs Asset Management estimates
that the aggregate funded status of
the U.S. corporate defined benefit system
fell to 86% at the end of August, from
87% at the beginning of the year and a
recent high of 91% in the second half of
last year. While pension plans returned,
on average, more than 15% through
August 31, actuarial losses due to the fall
in interest rates reduced funded levels by a
similar amount, says Mike Moran, senior
pension strategist at the firm.
The first thing a pension plan sponsor
should do in this environment is revise its
forecast of costs to its plan, Young says.
" Then it should re-evaluate management
policies that oversee [its] risks and costs,
[its] settlement and valuation policies, to
see whether it should change these in
light of continued low interest rates. "
Goldman Sachs takes the position
that plans with deficits " should earn their
way out. Even though rates are low, we
think [plans] should continue to buy fixed
income because they are under-hedged, "
Moran says. " Also, in an environment
where many asset classes are at high levels,
they should diversify their portfolios into
alternative, non-core fixed income, hedge
funds and liquid alternatives that are more
defensive. We view rebalancing to your
appropriate strategic targets as a prudent
risk management exercise. Whether it is
done quarterly, monthly or when there's a
deviation from your targets doesn't matter,
as long as you do something. "
DB plan sponsors will inevitably
also have to increase their contributions,
Moran adds. " On the corporate DB
side, many plans have enjoyed funding
relief from Congress, enabling them to
contribute less than they otherwise would
have had to, " he notes. " Many of these
rules sunset in 2021, and if interest rates
are still low then, [those plans'] contributions
will need to go up. "
For a different approach, pension plan
sponsors could decrease benefits to other
plans, such as a 401(k) the company may
offer, Young says. If they have multiple
pension plans, some overfunded and some
underfunded, they could also combine
them, Moran adds.
Pension plans can also better
manage their Pension Benefit Guaranty
Corporation (PBGC) premiums, Moran
says. " There are two such premiums: a
flat rate based on the number of participants
in their plan and a variable rate of
4.3% based on a plan's deficit, " he says.
" With interest rates going down, the cost
to borrow is below that 4.3%. Plans could
use that money to pay the premium. That
is effective arbitrage. Caterpillar, UPS
[United Parcel Service] and FedEx have
done this, and we expect more plans to do
the same.
" On the flat-rate side, " he continues,
" we see a number of organizations looking
for ways to get out of the plan through a
lump-sum payment to participants or by
buying an annuity through an insurance
company. In fact, many large-scale organizations,
including FedEx and BristolMyers
have done just that. " -Lee Barney
1. Publication Title: PLANSPONSOR
2. Publication Number: 013-662
3. Filing Date: October 8, 2019
4. Issue Frequency: Monthly, with exceptions
5. Number of Issues Published Annually: 6
6. Annual Subscription Price: $175
7. Office of Publication: 1055 Washington Blvd., Ste
400, Stamford, CT 06901; Contact person: Jackie
Scott, Telephone 203-595-3274. Mailing address of
headquarters or general business office of publisher: 1055
Washington Blvd., Stamford, CT 06901
9. Publisher: Katie Bacon, 1055 Washington Blvd., Ste
400, Stamford, CT 06901; Editor: Alison Cooke Mintzer;
1055 Washington Blvd., Ste 400, Stamford, CT 06901;
Managing Editor: Judy Faust Hartnett, 1055 Washington
Blvd., Ste 400, Stamford, CT 06901
10. Owner: Asset International, Inc., 1055 Washington
Blvd., Ste 400, Stamford, CT 06901; Genstar Capital,
4 Embarcadero Center, Suite 1900, San Francisco, CA
94111-4191
11. Known bondholders, mortgagees and other security
holders owning or holding 1 percent or more of total
amount of bonds, mortgages or other securities: None
12. Tax status has not changed during preceding 12 months
13. Publication Title: PLANSPONSOR
14. Issue date for circulation data below:
August/September 2019
15. Extent and Nature of Circulation: average number copies
each issue; number of copies of single issue
a. Total number of copies (net press run): 25,397; 25,635
b. Paid and/or requested circulation:
1) Paid/requested outside-county mail subscriptions
stated on Form 3541: 12,296; 12,387
2) Paid/requested in-county subscriptions stated on
Form 3541: 0; 0
3) Other non-USPS paid distribution: 200; 200
4) Other classes mailed through the USPS: 0; 0
c. Total paid and/or requested circulation: 12,496; 12,587
d. Nonrequested distribution:
1) Outside-county as stated on Form 3541: 11,081;
10,993
2) In-county as stated on Form 3541: 0; 0
3) Other classes mailed through the USPS: 0; 0
4) Nonrequested copies distributed outside USPS:
200; 200
e. Total nonrequested distribution: 11,281; 11,193
f. Total distribution (sum of 15c and 15e): 23,777; 23,780
g. Copies not distributed: 1,620; 1,855
h. Total (sum of 15f and 15g): 25,397; 25;635
i. Percent paid and/or requested circulation: 52.6%; 52.9%
16. Electronic Copy Circulation: average number copies each
issue; number of copies of single issue
a. Requested and Paid Electronic Copies: 6,066; 5,963
b. Total Requested and Paid Print Copies (Line 15c) +
Requested/Paid Electronic Copies: 18,562; 18,550
c. Total Requested Copy Distribution (Line 15f) +
Requested/Paid Electronic Copies: 29,843; 29,743
d. Percent Paid and/or Requested Circulation (Both Print &
Electronic Copies): 62.2%; 62.4%
17. Publication of Statement of Ownership will be printed in
the October/November 2019 issue of this publication.
18. Signature and title of editor, publisher, business manager
or owner: Alison Cooke Mintzer, Editor, 10/8/2019.
PLANSPONSOR - October/November 2019

Table of Contents for the Digital Edition of PLANSPONSOR - October/November 2019
