Rising interest rates and a potentially shrinking corporate income tax could lead to a higher percentage of companies closing their defined-benefit plans in 2017, according to Willis Towers Watson.
From Employee Benefits Advisor:
Michael Archer, leader of the Client Solutions Group at Willis Towers Watson’s North American retirement practice, says that an expected drop in the corporate income tax and an expected rise in interest rates will make it easier for defined benefit plan sponsors to terminate their retirement plans in 2017.
“If we get tax legislation that reduces corporate income taxes and is retroactive to the beginning of the year, we will see many plan sponsors make contributions in advance and fund their plan balance. They will do it because they are faced with PBGC premiums, which are increasing at a rapid rate, and those increases affect the cost of debt in retirement plans,” he says. “Now there are two incentives to fund and fund now because of the bigger deduction and they get out of paying the variable premium.”
The report also has some words for 401k plan sponsors. From EBA:
Archer encourages 401(k) plan sponsors to pay attention to the fees that are charged and the investment options they offer and also keep abreast of general compliance issues in the new year.
Regulatory bodies like the IRS and Department of Labor have increased the number of audits they are doing and the amount of attention they are paying to retirement plans.
“The focus on compliance is really important,” he says.
Archer pointed out that the Department of Labor has been sending letters to plan participants who are over the plan’s normal retirement age reminding them they can start their benefits.
“That kind of outreach hasn’t been seen before,” he says.