Pension Funding %

[savory]

I just received my annual pension funding notice. I am curious if my megacorp is doing better/worse than other pension funds. Here is the funding in %:

With Adjusted Interest Rates (Assumes 25 year average interest. I believe this concept was introduced this year)

2014 = 100.2%
2013 = 92.5%
2012 = 89.0%

Without Adjusted Interest Rates (2 year interest assumption -or something like that- which is consistent to past practices)

2014 = 79.2%
2013 = 80.9%
2012 = 77.7%

 

[Exrook]

With MAP-21 Interest Rates:

2014 = 104.3%
2013 = 97.2%
2012 = 97.2%

Without MAP-21 Interest Rates
2014 = 80.0%
2013 = 81.9%
2012 = 81.0%

 

[Exrook]

BTW - here is how my plan document describes MAP-21:

"This section is required by a federal law named Moving Ahead for Progress in the 21st Century Act (MAP-21).
MAP-21 changed how pension plans calculate their liabilities. The purpose of this table is to show you the effect of
these changes. Prior to MAP-21, pension plans determined their liabilities using a two-year average of interest rates.
Now pension plans also must take into account a 25-year average of interest rates. This means that MAP-21 interest
rates likely will be higher and plan liabilities lower than they were under prior law. As a result, your employer may
contribute less money to the plan at a time when market interest rates are at or near historical lows."

 

[Telly]

For my little pension --

With MAP-21 Interest Rates:

2014 = 109.3%
2013 = 104.5%
2012 = 103.7%

Without MAP-21 Interest Rates:

2014 = 91.9%
2013 = 92.6%
2012 = 91.5%

I have the exact same MAP-21 description boilerplate as Exrook.

Love these pols and their names: "Moving Ahead for Progress in the 21st Century Act"

And the real reason for it: "As a result, your employer may
contribute less money to the plan at a time when market interest rates are at or near historical lows."

 

[pb4uski]

With MAP-21 Interest Rates:

2014 = 109.85%
2013 = 104.86%
2012 = 90.75%

Without MAP-21 Interest Rates
2014 = 86.12%
2013 = 89.39%
2012 = not provided

and year end 2014 fair market value of plans assets were 119.12% of plan liabilities on the same date.

 

[ChicagoGal]

With MAP-21 Interest Rates:

2014 = 114.7%
2013 = 114.3%
2012 = n/a (chose not to use rates in 2012)

Without MAP-21 Interest Rates
2014 = 85.7%
2013 = 94.6%
2012 = 106.2%

 

[MBSC]

With MAP-21 Interest Rates:

2014 = 117.5%
2013 = 108.9%
2012 = 119.1%

Without MAP-21 Interest Rates:

2014 = 89.6%
2013 = 91.7%
2012 = 99.6%

 

[Hermit]

...

And the real reason for it: "As a result, your employer may
contribute less money to the plan at a time when market interest rates are at or near historical lows."

Yep, my megacorp was pumping crazy amounts of cash into the pension the last few years. If you are a retiree that was good. If you are a stock holder, not so good. Maybe this will smooth out the cash flow as intended?

 

[Exrook]

Yep, my megacorp was pumping crazy amounts of cash into the pension the last few years. If you are a retiree that was good. If you are a stock holder, not so good. Maybe this will smooth out the cash flow as intended?

Without MAP-21, funding shortfall on my pension for 2014 was over $6 billion, with a required minimum contribution of almost $2.3 billion. With Map-21, both amounts are $0.

 

[Big_Hitter]

Without MAP-21, funding shortfall on my pension for 2014 was over $6 billion, with a required minimum contribution of almost $2.3 billion. With Map-21, both amounts are $0.

that's why the law was enacted - it's a (tax) revenue generator

 

[ERD50]

Does anyone know the full funding return assumptions? I assume interest rates are only a part of it?

-ERD50

 

[Big_Hitter]

Does anyone know the full funding return assumptions? I assume interest rates are only a part of it?

-ERD50

those are in the form 5500 schedule sb - the 2014 plan year 5500 probably isn't filed yet

 

[imoldernu]

This is out of my league, but I recall, riding the train into Chicago in 1986 with a lawyer for one of the bus companies that service the Chicago Schools.
He told me that the Directors of the pension fund for his company had projected the current earnings (at the time about 12%) and revalued the current pension funding @ 130% of requirements. This resulted in a declaration of over funding, and a reduction in the actual fund by several million dollars, to be declared as a dividend to shareholders.
That did happen. I have no idea of the subsequent impact, but the implications had a lasting effect on my view of pension laws.

Safety in numbers, but also in understanding the legal protections.

 

[pb4uski]

Yep, my megacorp was pumping crazy amounts of cash into the pension the last few years. If you are a retiree that was good. If you are a stock holder, not so good. Maybe this will smooth out the cash flow as intended?

I'm not so sure it is bad for stockholders as the annual expense is independent of funding so the cash contributions don't result in an expense (but has some second order effects in the long run).

 

[Big_Hitter]

I'm not so sure it is bad for stockholders as the annual expense is independent of funding so the cash contributions don't result in an expense (but has some second order effects in the long run).

there is an expected return on assets component of net periodic pension cost so if you have less plan assets then ongoing P&L expense (for the pension plan) will be higher, caeterus paribus

 

[pb4uski]

I'm not so sure it is bad for stockholders as the annual expense is independent of funding so the cash contributions don't result in an expense (but has some second order effects in the long run).

there is an expected return on assets component of net periodic pension cost so if you have less plan assets then ongoing P&L expense (for the pension plan) will be higher, caeterus paribus

And what did I say in parentheses?

 

[Big_Hitter]

And what did I say in parentheses?

not sure - were you referring to ongoing P&L impact?

 

[imoldernu]

Bumping this, as it relates to some warnings that are appearing that indicate corporation stock buy-backs may be weakening future strength and ultimately the funding of pension promises.

This is out of my league, but I recall, riding the train into Chicago in 1986 with a lawyer for one of the bus companies that service the Chicago Schools.
He told me that the Directors of the pension fund for his company had projected the current earnings (at the time about 12%) and revalued the current pension funding @ 130% of requirements. This resulted in a declaration of over funding, and a reduction in the actual fund by several million dollars, to be declared as a dividend to shareholders.
That did happen. I have no idea of the subsequent impact, but the implications had a lasting effect on my view of pension laws.

Safety in numbers, but also in understanding the legal protections.

the article:
Pension Fund Officials Cry Foul As Corporate America Splurges On Stock Buybacks

Must think a little deeper on this... even though it may not affect you or me directly, pension failures can eventually weaken the economy.

A group of public pension officials has raised the alarm over record stock buybacks at the nation's largest corporations. The coalition, which collectively oversees more than $860 billion in public worker retirement funds, warned that stock repurchases by major companies hamper productive investments and threaten long-term growth.

"If the pendulum swings too far in favor of returning capital to shareowners, the future viability of the companies in which we invest may be placed at risk," the group wrote in a letter Wednesday.

The coalition pointed to McDonald's as a case in point. Even as the hamburger chain has suffered flagging growth and mounting discontent over its rock-bottom wages, McDonald's has redoubled its commitments to shareholders. The company repurchased $625 million of its own stock in the first three months of this year -- about 77 percent of its net income over that period. The company plans to return at least $8 billion to shareholders in 2015.

Those plans also have minimum-wage activists up in arms. As McDonald's prepares for its annual shareholder meeting in Illinois Thursday, thousands of fast-food workers demanding $15-an-hour wages descended on the premises. They, too, are highlighting what they consider to be excessive stock buybacks.