2014 Retirement Webinar Series - Aon · 2014 Retirement Webinar Series . ... USG Corporation...

2014 Retirement Webinar Series

Putting the Pieces Together –

Understanding Changes Affecting Pension

De-Risking and Settlement Strategies

Ari Jacobs, Chris Birch, Barb Hogg, Aon Hewitt

Tami Kucera, USG Corporation

Pension Settlements: Why? Why Now?

Today’s agenda

Understand what is

prompting increased interest

in pension settlements

Share perspectives on what

drives success

Hear about a successful

lump-sum window

Respond to your questions

Funded Status

Mortality Basis

PBGC Premiums

2 Retirement Webinar Series | March 19, 2014

Funded Status has Improved

Funded Ratio (based on the S&P 500)

Source: Aon Hewitt Pension Risk Tracker, https://pensionrisktracker.aon.com/

1/1/13

77%

4/1/13

82%

7/1/13

85% 10/1/13

89%

1/1/14

91%

13% Increase in funded

status from the end

of 2012 through

mid-March


People are Living Longer

Society of Actuaries proposed new mortality tables in February 2014

IRS could require the new tables as early as 2016

Estimated

increase in

lump sum for a

45-year-old

participant

5%-

12%

80.2 81.7

82.6

84.6

86.6 87.9

84.3

86.3 85.2 86.4

88.8 90.1

The 1980s The 1990s The 2000s Today:Old Basis

Today:New Basis

In 15 Years

Male

Female

Life expectancy of a person age 65

Note: Assumes December 2013 417(e) interest rates


The Bipartisan Budget Act of 2013 contains significant PBGC premium

increases

Second major premium increase in the last two years (MAP-21)

2014 2016 2026

(projected)

Flat rate (per person)

$49 $64 $80

Variable rate (per $1K unfunded)

$14 $29 $36

Carrying Costs are Increasing

Present value of future PBGC premiums

for a 45-year-old participant

Note: Recognizes flat rate premiums only

$1,500

Note: Assumes December 2013 417(e) interest rates and 2.3% inflation


Plan Sponsor Interest

Settlement Strategies Gaining Traction

Source: Aon Hewitt 2014 Hot Topics in Retirement


Lump-Sum Window Annuity Purchase

Plan sponsor reporting in late 2013

12% completed recently

+

14% very likely to do in 2014


+


Settlement Strategies Gaining Traction

Lump-Sum Window Annuity Purchase

Plan sponsor reporting in late 2013


+



+


Updates in March 2014

26% planning to run a lump-

sum window in next 2 years +

43% not sure, but considering

5% planning to purchase

annuities in next 2 years +

26% not sure, but considering

Source: Aon Hewitt 2014 Pension De-Risking Pulse Survey


Plan Sponsors Planning a Lump-Sum Window

Influence of PBGC premium increases and proposed mortality tables on

decision making

18% Decided to move

forward

13% Expanded the

eligible group

3% Accelerated

timing



Influences on Plan Sponsor: Barriers

Lump-Sum Window

32%

20%

Accounting

Staff time

32% Cash impact

29% Funded status

28% Interest rates

26% Ongoing feature



Influences on Plan Sponsor: Barriers

Annuity Purchase

72%

15%

34%

33%

23%

20%

Annuity cost

Other

Accounting

EE reaction

Process

Unions



Lump-Sum Window Considerations

Offer to all the terminated

vested participants or a subset

(ex: up to a $ limit)

One-time opportunity

Limited period (the “window”)

Variations on a Theme

Other approaches to lump sums

Small

amount

“sweeps”

Permanent

feature (perhaps with

$ limit)

Participant

reminders (if lump sum

available)

Retiree

windows

Typical

lump-sum

window


What Does a Lump-Sum Offer Mean?

No longer employed by

plan sponsor ♦

Lump sum of $13,200

instead of $300/month

in 20 years ♦

Ability to consolidate

retirement savings ♦

Voluntary!

Male

Age 45

Pension: $300/month

at age 65

Liability of $13,200 ♦

PBGC premiums and

administrative costs:

Present value of

$1,900 to $3,000 ♦

Expected liability increase

of $700 to $1,600 from

proposed mortality tables ♦

Plus associated pension

risk

For the sponsor For the individual

Note: Assumes December 2013 417(e) interest rates and 2.3% inflation


Plan Sponsor Experience

Source: Data from 57 lump-sum windows covering approximately 250,000 participants, See Aon Hewitt’s 2013 whitepaper

“Pension Settlements Through Lump-sum Windows” for additional information.

Lump-Sum Elections

54% On average

46% Dollar weighted

Direct Rollovers

55% of lump sums

68% of eligible dollars

Windows in 2013

Windows in 2012

0% 25% 50% 75% 100%

Lump-Sum Election Percentage by Plan Sponsor


Getting a Response: Process Matters

Preparation Participant

Interaction + Positive

Outcomes =

Election

percent

Financial

impact

Informed

participants Compliance

Reduced

risk

Very little

“noise”



Preparation

Coordination Design Business case In general

Build a detailed

project plan

Plan for

reporting needs

Prepare for

needed liquidity

Search for

participants

Clean up data

Calculate

accrued

benefits

Clarify

objectives

Receive buy-in

Estimate

financial

impacts

Consider impact

of decisions

Involve counsel

Determine

“go/no go” date

Participant


Outcomes = Preparation



Participant

Interaction

Mailings

Announcements

Election materials

Reminders

Service Center

Answer questions

Process elections

Make outbound

calls

Other Resources

Multi-channel

elections

Financial guidance

Alternative touch-

points


Participant


Outcomes = Preparation Participant


Outcomes = Preparation

USG Corporation Implements

Successful Lump-Sum Window

Tami Kucera, Senior Manager, Employee Benefits

Background

Company with 100+ year history

Headquarters in Chicago, IL

Manufacturer and distributor of building

materials for the construction and

remodeling industries

– Leading manufacturer and distributor of

wallboard, joint compound and related

products in North America

– Global leader in the manufacturing of

ceiling suspension systems and

recognized as the premier acoustical

panel and specialty ceiling systems

innovator

Union-free manufacturing facilities

Rich history of innovation with more

1,100+ patents


USG Retirement Programs

Hired through 2010 Hired in 2011 or later

Final average pay pension plan Cash balance plan

At retirement At termination At retirement or termination

Pension plan with employee contributions

Lump sum or

annuity

Note: About 80%

of retirees take

the lump-sum

payment

No lump-sum

option

Return of

employee

contributions

only

Lump sum or annuity


Deciding to Offer the Lump-Sum Option

Considerations in making a lump-sum offer

Well-funded pension

USG often contributed more than minimum

Funded

status

Focus window on

terminated vested

participants without

a lump-sum option

About 4,200 total

Population

Save on PBGC premiums (including increases)

Avoid cost increases due to new mortality basis

Future

costs


Lump-Sum Window Outreach

1

Announce

2

Inform

3

Remind

Introduce opportunity

Request address

verification for those

without verified address

(about 30% received a

separate version)

Inform term vesteds of

lump-sum amount

Provide education

around options

Describe how to make

an election

Send two reminders

about the window

Make calls to those

who had started and

not completed process


Expectations Met and Then Some

45% participated in the window

representing $67M in lump sums

97% chose the lump

sum; 3% elected

an annuity

payment

58% participated

among those

with a verified

address

4% started, but did

not complete the

election process


Questions & Answers

Contact Us

[email protected]

Ari Jacobs

Global Retirement Solutions Leader

Aon Hewitt

Chris Birch

Associate Partner

Aon Hewitt

Barb Hogg

Partner

Aon Hewitt


mailto:[email protected]

About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through

innovative talent, retirement and health solutions. We advise, design and execute a wide

range of solutions that enable clients to cultivate talent to drive organizational and personal

performance and growth, navigate retirement risk while providing new levels of financial

security, and redefine health solutions for greater choice, affordability and wellness. Aon

Hewitt is the global leader in human resource solutions, with over 30,000 professionals in

90 countries serving more than 20,000 clients worldwide. For more information on Aon

Hewitt, please visit www.aonhewitt.com.

© 2014 Aon plc

This document is intended for general information purposes only and should not be construed as advice or opinions on

any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of

publicly available information. The content of this document is made available on an “as is” basis, without warranty of any

kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from

any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document.


http://www.aonhewitt.com/

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