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Posts Tagged ‘pensions

Pensions PAYG Benchmark

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Pension Benefits v Contributions 2014 nov-dec (54)Very early on the education of a pension actuarial student encounters the pay-as-you-go (PAYG) “funding” method, under which contributions simply equal benefits. Except for the occasional reference to our Social Security system, which is basically run on a PAYG basis, the student then leaves the method behind for the majority of practice. Except for nonqualified deferred compensation plans for executives, numbers for which are a material piece of the pension numbers reported on corporate financial results — since those plans are unfunded, their contributions are made on a PAYG basis. In fact, during periods when companies have been on a “contribution holiday” for their qualified pension plans due to previous advance contributions (e.g., as was recently the case for GM), their domestic pension contributions are comprised entirely of PAYG amounts paid to their nonqualified deferred comp programs. Aside from those actual PAYG amounts, the PAYG basis offers a useful benchmark for assessment of total contributions made to all pension plans sponsored by an employer.

This chart shows results for 54 public U.S. employer with 2014 fiscal years ending in the 4th quarter of 2014 that have released their 2014 annual financial statements by 13 February 2015. For those companies, the chart shows aggregate pension benefits paid (smooth higher orange line) and aggregate employer contributions to pension plans (volatile lower blue line) for fiscal years 2000 through 2014.

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Written by macheide

14 February 2015 at 4:26 am

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Pension Volatility — Employer Contribution vs Investment Returns

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Pension Employer Contribution vs Asset Return 2014 dec (50)Employer contributions to pension plans, as illustrated and discussed in my previous post, might seem more volatile than corporate finance officers, investors and creditors and other interested parties (such as the pension plan participants) might like to see. Imagine, for instance, if the employer’s “contributions” to direct compensation paid for salaries were as volatile. But compared to pension asset returns, another key factor in the costs of pension plans, employer contributions appear relatively stable.

For 50 U.S. public corporations with calendar fiscal years, this chart shows employer contributions to single-employer defined benefit pension plans (orange smooth line) contrasted with investment returns on the pension plans’ assets (blue volatile line) for 2000 through 2014.

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Written by macheide

13 February 2015 at 6:18 pm

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2014 Pensions — Employer Contribution

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2014 Pensions - Employer Contribution all (205)For 205 public U.S. corporations, this chart shows the aggregate global employer contributions to single-employer defined benefit pension plans for fiscal years 2000 through 2014. As I’d anticipated last year, the amount continued to decline . . . and the main reason for that decline had absolutely nothing to do with pension funding relief legislation.

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Written by macheide

12 February 2015 at 11:33 pm

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2014 Pension Asset Return

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FR PBO 2014 all fy+1 (275)Investment returns for assets of defined benefit pension plans sponsored by public U.S. corporations generally remained at the healthy levels experienced for 2012 and 2013. This chart shows the aggregate global investment returns during fiscal years ending in 2000 through 2014 for the assets of pension plans maintained by 275 companies (including companies with calendar fiscal years as well as non-calendar fiscal years; and with a fiscal year shift of 1 month, i.e., results for companies with fiscal years ending in January are shifted back to the preceding calendar year). The solid horizontal line in the chart represents zero: years during which investment returns slipped below that line represent years when assets lost value.

Future posts will estimate the annual rates of return based on these investment results, together with estimated cumulative rates of return over multiple years, then will compare those rates of return with investment return assumptions used to determine pension plan costs.

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Written by macheide

11 February 2015 at 9:42 pm

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2014 Pension PBO Funded Ratio

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Pension PBO FR 2014 all fy+1 (275)As I’ve been separately exploring in a post looking at plan assets and projected benefit obligations for defined benefit pension plans sponsored by public U.S. corporations, during 2014 the increase in obligations due to lower interest rates outpaced investment gains in assets. The result: a drop in the aggregate pension plan funded ratio, reversing roughly two thirds of the increase in pension funded ratio experienced during 2013.

This chart shows the aggregate global pension plan funded ratio determined on the basis of projected benefit obligations for 1995 through 2014 for 275 companies, including employers with calendar fiscal years as well as non-calendar fiscal years. The data set for this chart uses a fiscal year shift of one month: companies with a fiscal year ending in January are treated as if in the preceding calendar year.

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Written by macheide

9 February 2015 at 8:20 pm

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2014 Pension MVA & PBO

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Pension MVA & PBO 2014 (275 FY+1)For 275 U.S. corporate sponsors of defined benefit pension plans, this graph shows aggregate global numbers for market value of pension assets (blue diamonds) and projected benefit obligations (red squares) for fiscal years ending in 2000 through fiscal years ending in 2014 (treating fiscal years ending during January as having been for the preceding calendar year). As expected, this chart shows trends that are quite similar to those that had been seen on the original charts shown in this post for 6 companies, for 16 companies, and for for 205 companies: asset increases for 2014 on pace with the gains of 2013, but with even greater increases in projected benefit obligations due primarily to significant declines in discount rates.

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Written by macheide

7 February 2015 at 12:05 pm

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