PLANADVISER - Spring 2023 - 25

an employer's standpoint in terms of
cash flow perspective, " Lowell said. " But,
from the employee standpoint, there's
an awful lot you get, from your choice
of a lump sum in almost all plans to an
annuity at fair prices. "
Variable Benefit Plans
Another trend in the DB space is what
Steve Mendelsohn, pension director at
Zenith-American Solutions Inc., called
variable pension plans, which reduce
risk to the funding sponsor. These
types of plans have " struck a chord
with Taft-Hartley " trustees, or multiemployer
benefit trusts, he said.
There are two types of variable
plans, said Richard Hudson, consulting
actuary at First Actuarial Consulting
Inc. In one, the participant's endbenefit
fluctuates depending on market
returns. This type " generally shows
its benefit in terms of shares in the
plan, " Hudson said. " A benefit formula
might be $100 per month per years of
service for one person, to pay whatever
it might be; you take that benefit, and
you convert it to a number of shares. "
Those share values will increase and
decrease each year with the investment
performance trust fund, Hudson noted.
One concern is that anyone retiring
during a market downturn could
lose 20% of his benefit. To offset that,
some plans set up a reserve to protect
retirees from a downturn. Either way,
this market-tied defined benefit may
be a challenge for sponsors to manage
due to market fluctuation.
In the second scenario, the employee
will get a fixed contribution; what will
change are the future accruals within
the trust, Hudson said. " The general
idea of this plan is to provide the
employee with a fixed contribution, " he
said. This plan is " not subject to volatility
and ensures that the contribution
is sufficient by adjusting for future
benefits. It then allocates those dollars
between
newer
pools
and
underfunding
in the plan and paying that off. "
These plans do have drawbacks,
said Hudson. Those include the necessity
to design the plans without the
designer knowing the future investment
market; there are also some gray
areas as to how the IRS values variable
benefit plans.
In the end, sponsors can go back and
forth while weighing benefits of the two
LONG-TERM INVESTING
Given the volatile stock market and
high interest rates, pension plan sponsors
may want to consider custom,
liability-driven investment
strategies,
according to the panel of experts.
Mike Gheen, a vice president and
director of retirement plan services at
Oswald Financial Inc., said investment
managers need to create customized
portfolios that match pension plan
sponsors' particular liabilities.
While sponsors can buy off-theshelf
products, Gheen said, these may
not necessarily match specific liabilities.
" You really need to be buying
individual securities to maximize that
matching potential, " he said.
Historically, if a plan had assets
of less than $250 million, it often had
to be satisfied with an off-the-shelf
investment option. But Gheen said he
has seen this dramatically change over
the past few years, and customization
is now available for plans all the way
down to the $10 million mark. He said
investing in a combination of longerduration
bonds and equities is a viable
strategy. If a pension is underfunded,
SESSION SPEAKERS
designs, Hudson said, " but ultimately,
the deciding factor will be: 'What can
we communicate to our participants?
And what will they understand?' That
decides which plan you're going to deal
with long term. " -Alex Ortolani
he said, it is important to maintain a
component of growth assets. " No two
plans are the same, so no two portfolios
are going to look the same. "
For sponsors looking to terminate
their plan, Kate Pizzi, a partner in, and
senior consultant for, Fiducient Advisors,
said sooner may be better than
later, because interest rates are high
and liabilities are lower. The market is
also expecting more rate hikes from
the Federal Reserve this year. One
of the " biggest nuances " in pension
management right now, Pizzi said,
is
deciding when is the right time to offer
lump-sum distributions as part of a
de-risking strategy on the liability side.
When offering participants a lump
sum, she said, the investment strategy
needs to consider the interest rate the
payout will be based on. Many calendaryear
plans base a lump-sum payment
on a " look-back rate. " For instance, any
lump sum that is payable this year may
be based on rates from late 2022, which
could potentially be much higher than
those at the time of payout.
In order for plan sponsors to
understand and calculate their liabilities,
Pizzi said, they should form a
strong partnership with their actuaries,
especially as interest rates
continue to fluctuate. Pizzi also said
rising interest rates are surprisingly
" good news " for the pension investor
because they have caused liabilities
to shrink. -Remy Samuels
Richard Hudson
Consulting actuary,
First Actuarial
Consulting Inc.
John Lowell
Partner and
consulting actuary,
October Three
Consulting LLC
Mike Gheen
Vice president,
director, retirement
plan services,
Oswald Financial Inc.
Steve Mendelsohn
Pension director
Zenith-American
Solutions Inc.
Kate Pizzi
Partner and senior
consultant,
Fiducient Advisors
Participants | Spring 2023 | planadviser.com 25
http://www.planadviser.com
PLANADVISER - Spring 2023

Table of Contents for the Digital Edition of PLANADVISER - Spring 2023
