Analysis of Defined Benefit Pension Plans
Despite ongoing economic uncertainty, the nation's largest corporate defined benefit pension plans ended 2022 essentially at the same funded level as 2021, according to Mercer Pension Health Pulse's analysis. Of the defined-benefit pension plans in Mercer Pension Health Pulse's database, 79 per cent are estimated to be in a surplus position on a mark-to-market basis at the end of the year.
The Aon Pension Risk Tracker calculates the aggregate funded position on an accounting basis for companies in the S&P/TSX Composite Index, the S&P 500, and the S&P EURO 350. It reported that, at the end of 2022, the funded status of these plans had improved by 6.2 percentage points from the prior year, and the collective funding ratio was at 78.6 per cent, the highest level since the tracker was created in 2007.
The Internal Revenue Service issued final regulations in January 2021 regarding Qualified Foreign Pension Funds (“QFPFs” and the “Final QFPF Regulations”) and their exemption from the application of FIRPTA (the Foreign Investment in Real Property Tax Act). The Final QFPF Regulations provide that, in order to qualify as a QFPF, a pension fund must be established, regulated and operated in accordance with the laws of a foreign country that provides for the regulation and operation of pension funds.
In the past 250 years, what have we learned about defined-benefit pension plans like the Teamsters Central States Pension Fund? Nothing. It's a long story, but the short answer is that the common sense principles that guided the creation of defined-benefit pension plans are still valid today. The focus is on long-term security, and that includes providing for future retirees and their families.
Liam Mayne, partner and corporate actuary at Barnett Waddingham, said: ”Member options, support and choice in defined benefit (DB) pension plans are becoming increasingly important. As the landscape for DB pension provision continues to evolve, the focus must remain on providing retirement security for members and their families, now and in the future.”
Pensionomics 2023: Measuring the Economic Impact of Defined Benefit Pension Expenditures calculates the national economic impacts of U.S pension benefits and contributions. The report estimates that U.S pension benefits and contributions will generate $5.2 trillion in economic output and create and support more than 28 million jobs in 2023.
Liability-driven investments are becoming increasingly popular among defined benefit pension schemes. Following the “mini” Budget in September, shares were set running among some defined benefit pension schemes that investing in liability-driven investments (LDI) could help them meet their funding targets.
The government has also proposed to allow retired government employees to opt for exit from the defined-contribution National Pension System (NYSE:NPS), back to the defined-benefit Old Pension Scheme (NYSE:OPS). This move is expected to benefit around 1.5 million retired government employees and their families.
