Pension Liability
Reduction Strategies
Pension Liability Reduction Strategies
1. Develop a Funding Plan
a. Benefit to the Actuarial Assumptions used.
2. Increase / Accelerate funding of your plan
a. At minimum, fund your Annual Required Contribution
(ARC)
• Theoretically, this keeps the liability from growing.
b. Shorten the Actuarial Amortization Period – increases
annual funding requirement.
c. Advance / Additional Funding
• Is funding with a Bond Issue practical?
• Is there room in your O & M?
• Employee Contribution - Increase
Pension Liability Reduction Strategies
3. Change your Defined Benefit (DB) plan
a. Immediate Closure
•
•
•
•
Existing employees accrue no additional benefits.
Be careful here – this actually may increase what is required to be
paid to the Administrator in the short term.
Close to new entrants
Buy Outs possible?? Lump Sum vs. payments over time. Set
calculated (NPV) limits on what will be disbursed (develop a plan).
b. Hybrid Plans
•
•
New entrants receive combination of a reduced DB plan combined
with a DC plan.
Existing employees earn a lesser benefit going forward (smaller
multiplier).
Pension Liability Reduction Strategies
3. Change your Defined Benefit (DB) plan (cont.)
c. Replace with a Defined Contribution (DC) Plan
•
•
•
•
DC Plans must be funded as-you –go
Employer Contribution – Reduced and easily regulated
Portable
Reduced administration
d. Miscellaneous
• Calculate before you offer:
1. COLA’S
2. End of Employment agreements
OPEB Liability Reduction
Strategies
OPEB Liability Reduction Strategies
1. Develop a Funding Plan
2. Increase your Funding
a. Fund at least the Annual Required Contribution
(ARC)
b. Develop a Funding Plan
• Get benefit of your funding plan in Actuarial Assumptions
c. Fund with a Bond Issue
3. Close your OPEB plan to new participants
4. If Self Insured OPEB Plan, consider:
a. Purchasing Retiree Medical Coverage or an EGWP
b. Eliminate Stop Loss for Retirees
OPEB Liability Reduction Strategies
5. Consider an Employer Group Waiver Plan (EGWP)
a. EGWP covers Medicare Part D (Prescriptions)
• You should consider an EGWP if you are:
1.
2.
3.
4.
5.
6.
7.
A taxable entity and your Retiree Drug Subsidy (RDS) payments
will now be taxed
A government entity that wants to reflect the impact of Medicare
Part D in its GASB 43/45 accounting
A plan with skyrocketing drug claim costs even with RDS
A plan for which RDS compliance has become a problem
A plan contemplating an end to post-65 retiree benefits due to the
cost
A plan looking for strategies to better manage retiree premiums
A plan that thought you couldn’t have an EGWP because your
retiree population was too small
OPEB Liability Reduction Strategies
6. Consider Buy Outs of Individual Retiree OPEB
obligations
a. Cost out your individual employee actuarial liability
b. Can you buy out the actuarial liability for pennies/dollar?
• Do they have option to alternative coverage and will
take a lump sum buyout?
1. Look for employees with other alternative for Retiree
Medical coverage options (i.e., from previous employer,
military retirees)
OPEB Liability Reduction Strategies
7. Change your Plan or Plan Benefits for Medical
Retiree Insurance
a. Make Medicare Coverage Primary
b. Raise % of Employee Contributions for Employee
and/or Retiree Medical Insurance
c. Raise Deductibles /Co-Pays
d. Reduce or Limit the Employer Contribution
DISCLAIMER – The material presented here today
by this panel is offered for informational purposes
only and does NOT constitute Legal, Actuarial, or
Accounting advice!
Before acting on any of the information presented
here today, it is strongly recommended that you
contact your Agency’s Legal, Actuarial, and/or
Accounting professionals.