PLANADVISER - Spring 2023 - 24

CONFERENCE COVERAGE
Reexamining the potential for defined benefit plans
Attention to defined benefit plans has been increasing, as
plan sponsors determine what benefits can attract and retain
employees-not
to mention what strategies can best help
participants prepare for their golden years. DB plan consultants
have suggested that sponsors consider alternatives to
the traditional DB plan, such as cash balance or variable rate
plans, to eliminate funded status volatility concerns. During
the 2023 DB Summit, a webinar PLANADVISER presented in
March, speakers explored the prospective role of DB plans in
Americans' retirement security. Topics probed were long-term
investing, decisionmaking factors, pension risk transfer and
alternative DB plan designs. Coverage of two sessions follows.
ALTERNATIVE
DB PLAN DESIGNS
A DB cash balance plan is an account
paid into by the employer yet operating
similarly to a 401(k) plan for
participants; these plans also give
retiring or terminated employees the
option of a lifetime income annuity
or lump-sum payout. Thanks to the
reversal of an IRS interpretation of
wording in the Pension Protection
Act now allowing for plan payouts to
align with employee tenure, companies
may start considering DB cash
balance plans again, said John Lowell,
a partner and consulting actuary at
October Three Consulting LLC.
Of late, many organizations were
either ignoring this plan option or
freezing the cash balance plan they
had because " they couldn't stand the
volatility " in managing it, due to market
fluctuations, Lowell said. The plans
also had a major disadvantage-regulation
forbade them to vary the retirement
income check based on tenure.
" It's very technical, but essentially
[regulators] said almost any cash
balance design you have with a variable
interest crediting rate has to
have back-pay credits, " Lowell said.
" That means that if you give a 5% pay
credit to a person who's 20 years old,
you have to give a 5% pay credit to a
person who's 60 years old. You can't
have any variability. "
Under the PPA, cash balance plans
tended to have graded pay credits. To
return to that more attractive option,
Lowell said, industry players were told
they needed a Congressional fix.
SECURE 2.0 Does It
That fix came with passage of the
SECURE-for Setting Every Community
Up for Retirement Enhancement-2.0
Act this past December. It allowed plan
sponsors to assume an interest credit
that is what the act called a " reasonable "
rate of return-as much as 6%.
" What that does is now say that
participants can get a market rate of
return on a basket of investments that
they can invest in, in just the regular
world or in their defined contribution
plan, " Lowell said.
For sponsors, if they know what the
rates of return will be, they can hedge
those by making the same or similar
investments, he explained. This is key,
because a sponsor's plan assets and
liabilities can track each other, essentially
de-risking the plan and providing
costs that are as stable and predictable
as a 401(k) plan or a profit-sharing plan.
" There's really no difference from
24 planadviser.com | Spring 2023 | Participants
SUMMIT
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PLANADVISER - Spring 2023

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