Pension Protection Act and Pension Relief

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It has been several years since the passage of the Pension Protection Act of 2006 (PPA). Companies with both defined benefit (DB) and defined contribution (DC) plans have been turning to Milliman for guidance to get through the often-confusing maze of compliance issues. We are an industry leader in pension valuations and have worked proactively with clients since PPA was passed, offering them insight and practical steps to assist them in the new retirement landscape.

PPA has been amplified through many hundreds of pages of guidance and regulations. It has also been followed by further legislation, including the Pension Relief Act of 2010 (PRA 2010). Milliman consultants quickly acquire the knowledge of pension law and pension relief and translate it into forward-looking strategies for our clients.

Defined benefit plans

Single-employer plans: In the new PPA landscape, decisions made on contributions in a given year will affect the next year as well, complicating the task of choosing an optimal path. PPA thus has created a crucial need for reliable forecasting to help determine appropriate funding requirements and to assist sponsors in managing credit balances and benefit restrictions. Milliman uses cutting-edge actuarial computer modeling and applies an in-depth understanding of the law to help clients discover their best pension funding options among traditional choices and new alternatives.

Milliman has models that suit any type of client in any situation. We are well experienced in running large, stochastic models using Monte Carlo simulations that can assist clients who desire sophisticated modeling of both the liability and asset side of the ledger. We also offer simpler, deterministic modeling for smaller projects or smaller clients. Our modeling allows clients to examine multiple possible scenarios to understand the future implications of their funding choices. We present clients with a full range of strategies and frankly discuss each option's pros and cons so that the client can select the best course of action. We also modify our models to incorporate any legislative changes or pension relief as it happens so that sponsors can see the immediate impact and make timely decisions.

Multiemployer plans: PPA changed the funding rules for inadequately funded multiemployer plans, requiring actuarial projections to determine a plan's "zone status"—generally identified as green, yellow, or red. Milliman's sophisticated projection tools allow trustees, employers, and labor unions to understand and prepare for PPA's effects on their plans.

Endangered or critical plans (i.e., those that are not "green") require the trustees to adopt a funding improvement plan or a rehabilitation plan. Milliman has worked successfully with both labor and management to develop appropriate actions and schedules required under PPA 2006.

Defined contribution plans

While PPA targeted sweeping changes to DB plans, it also made some significant changes to DC plans. In light of these changes, Milliman offers clients new opportunities and consults on issues relevant in the new retirement landscape, such as conversions to Roth IRAs. We assist clients in streamlining and simplifying 401(k) and 403(b) plans while promoting retirement savings among employees. Our automatic enrollment plans are designed to boost employee savings and encourage participation.

Milliman's SmartTomorrow™ package offers the auto-enrollment and auto-increase features that start participants saving for retirement. Under SmartTomorrow, plans can meet the qualified default investment alternative (QDIA) requirements that help plan sponsors fulfill their fiduciary responsibilities. Our consultants also assist clients in complying with PPA's many new required participant notifications, ensuring that benefit program goals are met.

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