The Total View - (Page 42) Defined Benefit Plans Remain Highly Valued Although regulations have been slow in coming, passage of the landmark Pension Protection Act of 2006 (PPA) made it an exciting time for DB plan sponsors, largely because one of the main goals of the legislation was simplifying DB funding rules to allow for funding flexibility. 6.9% Defined Benefit Assets by Asset Class* Percent of Assets as of 12/31/2006 0.4% Today many DB plan sponsors find themselves reviewing their plans in light of PPA and upcoming FASB changes. While some plan sponsors will undoubtedly freeze or terminate their DB plans, many other plan sponsors have chosen to wait for clarification from the IRS and DOL before taking any action. Another issue is that Pension Benefit Guaranty Corporation (PBGC) solvency concerns have not been eliminated. As some very large employers to drift towards Chapter 11, further large liabilities may be transferred to the PBGC. Domestic Stock Bonds Money Market Asset Allocation International Stock Other 20.3% 27.8% 7.8% 36.9% Forecast: Alternatives are Re-Emerging New DB plan formation is still generally limited to professional corporations, selfemployed individuals, and select not-for-profit organizations. However, plan sponsors are revisiting tried-and-tested alternatives. Thanks to the legitimization of hybrid plans through PPA, options such as Cash Balance designs are once again becoming viable options to help balance the risk of maintaining DB benefits, while at the same time providing retirement income security for employees. While employers continue to look for answers to their lingering questions about their retirement programs, they may increasingly be on the lookout to coordinate all their retirement plan needs with a single-source service provider. Domestic Stocks were the predominant asset class in which DB assets were invested, followed by Bonds and Money Market. This remained unchanged from 2005. * Percentages in graphs are rounded to the nearest integer percentages in order to increase readability and may not total exactly 100%. Fast Fact During 2006, DB plans totaling over $760 million in plan assets transferred their retirement plans to the Principal Financial Group for administrative services. 42
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