Brian Donohue芝加哥咨询公司的〈养老基金目标和战略〉

1、Pension Funding Targets and StrategiesBrian Donohue, Chicago Consulting ActuariesJerry Mingione, Towers PerrinMay 12, 20041History of Funding RulesIn the beginning of time (post-ERISA).actuaries had considerable control over the assumptions and methods used for determining funding requirements.Finan

2、cial assumptions were set to be reasonable on a long-term basis.Actuarial methods were selected, essentially right from the text book, with considerable freedom.Unfunded liabilities were funded over 10-30 year periods, based on level payments.2History of Funding RulesThen things changed legislativel

3、y.In 1987, OBRA instituted the concept of current liability, in order to bring a solvency/termination basis perspective to funding requirements (and tax deduction allowances). Basically, plans were required to maintain a funding level of 90% of current liability.If they fell below this level, they w

4、ould be required to contribute additional amounts to recover their funded position over (essentially) 3-5 years.Current liability-based funding requirements were made more stringent in 1994:maximum CL interest rate reduced from 110% to 105%updated mortality tableincreased required funding %s for def

5、icit reduction contributions.3History of Funding RulesAnd capital market changes upset the dynamics.Initially interest rates were high enough that the termination basis calculations did not override the long-term funding basis that plans had traditionally used for funding.Then interest rates decline

6、d in the 90s, as did equity markets in the early years of this decade creating the doomsday scenario for pension plans. Actuary-set long term-based financial assumptions did not react much.Thus, the dynamics of pension funding requirements changed dramatically.Treasury cut back the issuance of 30-ye

7、ar bonds in 1998, and then eliminated them entirely in 2001.Yields on 30-year T-bonds declined and the credit spread widened.It became apparent that a legislative remedy was required.Temporary relief was granted for 2002-2003 by raising the interest rate cap to 120%. 4Current SituationLets compare a

8、ssumptions in the late 1980s vs. today:* Potentially increases to about 6.4% with interest rate relief.19882004average contribution interest rate8.4%8.3%30-year Treasury yield9.0%5.1%maximum current liability rate10.1% 5.5%*5Current SituationHeres what those changes imply in terms of valuation resul

9、ts and contribution requirements:198820042004without reliefwith reliefvaluation interest rate8.4%8.3%8.3%current liability rate10.1%5.5%6.4%AAL funded ratio84%83%83%CL funded ratio115%73%81%regular minimum$47.3$49.2$49.2addtl. funding charge0.075.634.7minimum with DRC124.983.96Current SituationThe t

10、ypical pension plan today has a current liability fundedstatus in the range of 80-90%. Many, of course, are well below this level.Contribution requirements tend to spike dramatically as funded levels fall below 90%.However, contribution requirements in most cases lag emerging financial experience by

11、 roughly 2-3 years, due to the effects of:volatility relieffour-year averaging of interest ratesasset smoothingallowable contribution timing delays.7Current SituationPlan sponsors have typically not been proactive in addressing theirdeclining funded positions with a few notable exceptions. Why?They

12、counted on smoothing to avoid the worst effects of the capital market situation, and that the capital market situation would improve over time.They counted on legislated solutions to mitigate contribution requirements.The implications in terms of future contribution requirements were not always made

13、 clear.The number of alternative funding measures made it hard to monitor results and determine/prioritize funding targets. 8Lessons LearnedPoorly funded plans entail a number of adverse consequences, in addition to spikes in futurecontribution requirements:quarterly contribution requirementsPBGC va

14、riable premiumsparticipant notices re underfundingPBGC underfunding noticeadditional minimum liability/charges to shareholder equity.9Lessons LearnedRecent experience has exposed a need to better monitor CL funding, and potentially adjust funding over time so as to maintain a target funding level:60

15、% to avoid restrictions on benefit improvements80%/90% to avoid additional funding charge + participant notice100% to avoid quarterly contributions.110% to avoid lump sum restrictions to top 25.125% to allow section 420 transfers to fund retiree medical benefits (based on OBRA CL).10Lessons LearnedO

16、ther possible funding targets:FFL to avoid variable premiumABO to avoid additional balance sheet liability.11Lessons LearnedWhile 2003 results were strong, they werent a panacea.Plan sponsors still have the after-effects of smoothing methodologies to deal with.Most plans now realize that a minimum f

17、unding strategy is not optimal.There is also considerable legislative uncertainty remaining:short-term interest rate and DRC-related relieflong-term funding reform.12Proactive StrategiesPush back quarterly contributionsrequires minor acceleration of contribution timingimproves CL funded %reduces PBG

18、C premiums.Avoid DRC90%/90%/80%/80% patternavoids large increase in funding requirements.Avoid PBGC variable premiumfunding target based on FFLvariable premiums, unlike contributions, are a dead-weight loss to employers.13Proactive StrategiesExample 1: Minimum FundingAggregate contributions: $ 390.4

19、Aggregate PBGC premiums: $ 10.914Proactive StrategiesExample 2: Push back quarterly contributionsAggregate contributions: $ 381.9Aggregate PBGC premiums: $ 6.515Proactive StrategiesExample 3: Avoid DRCAggregate contributions: $ 355.6Aggregate PBGC premiums: $ 4.516Proactive StrategiesExample 4: Avoi

20、d PBGC variable premiumAggregate contributions: $ 346.4Aggregate PBGC premiums: $ 1.817Proactive StrategiesConsultants need to clarify pension funding decisions for clients.The actuarial report has become a compliance document, not a consulting document.The old model (minimum and maximum) has been r

21、eplaced by a new model (targets and consequences) for pension funding.Forecasts are essential to client understanding and decision-making.Ultimately, pension funding decisions should be less complicated than they currently seem to employers.18Proactive StrategiesLong-term strategic approaches - dete

22、rmine the long-term cost of the plan (e.g., level % of pay) and fund this amount, subject to min/max constraintspotentially reduces the volatility of annual contribution requirements dramaticallydoes this by avoiding the “feast or famine scenarios that most plan sponsors have been seeing.Area of con

23、cern: how do variations in contribution requirements correlate to the ups and downs of the business cycle?In economic terms it is not just the amount of required contributions that should be of concern, but the potential disutility of having to make those contributions at the wrong time.19Proactive

24、Strategies2003Minimum Funding Target2004200520062007Contributions20032004200520062007Analysis shows that target contributions in advance of requirements should reduce the level and variability of future contributions.20Proactive StrategiesWhat do companies actual funding policies look like to the ex

25、tent they have developed one?90% of surveyed companies reported having some type of funding policy, although typically these are unwritten/informal.Contribution targets within these policies were as follows34% expected to pay the minimum required contribution16% targeted to maintain a 90% funded lev

26、el for current liability8% targeted to avoid PBGC variable premiums6% set funded level targets based on PBO/ABO measures5% targeted to avoid participant underfunding notices5% expected to pay the maximum deductible amount. Source: 2002 Towers Perrin survey; 115 responses21Funding ReformIn terms of n

27、ear-term funding relief, Congress seems prepared to grant the following:Replacement of 30-year Treasury bond yield with a composite rate consisting of high quality long corporate bond indicesadds as much as 1.0% to the 4-year weighted average for 2004 (note: there is some uncertainty as to how Treas

28、ury will implement the new rate).Other limited relief provided for airlines, steel, and multiemployer plan sponsors.These provisions will only be effective for two years - through YE 2005. Thus continuing efforts to craft more permanent funding reform will be necessary - starting immediately.22Fundi

29、ng ReformWhat might permanent reform look like? The Treasury department has made proposals along the following lines:Solvency measures would reflect snapshot values of assets and liabilities, including interest rates based on a yield curve.The changes would make pension funding more responsive to ca

30、pital market conditions and the varying effects of plan demographics.There would be increased disclosure requirements with respect to plan funded status (based on the same snapshot/solvency measure), and restrictions on benefits provided under poorly funded plans.There have also been proposals to modify the PBGC premium structure to be mor