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Can an employer afford to sit on the sideline?

Why the sideline matters to me

I love basketball.  I should be more specific.  I love watching basketball.  I’m not tall, or athletic, so my forte is being a spectator. I’ve watched my nephew play for years.  Unlike his aunt, my nephew is athletic. Now that he’s in eighth grade, he plays for two teams—one with school and a club team.

As his basketball season continues, so does the NCAA’s.  Every year, I look forward to March Madness…the games, the brackets, and the hope that my college alma mater will be included. Read more

National Pi Day

HZ1226Today, March 14th is Sarah, my youngest daughter’s, birthday.  She has assured me over the years that this is a significant holiday that should be properly recognized.  It turns out that she is correct as March 14th is National Pi day.  In fact, this year marks the 26th anniversary of celebrating all things pi. 

A little background on Pi

For those of you like me that haven’t taken a math class in decades, Pi is the ratio of the circumference of a circle divided by its diameter. It is approximated at 3.14 (which means that the distance around the circle is 3.14 times the distance across the circle) although the actual number has been calculated to ten trillion digits (1013).   Read more

The Billion-Dollar Question

Everybody loves cheap money, right?  Well, if you’re a borrower, you’ve definitely benefited from actions taken by the Federal Reserve to keep interest rates at record lows.

But not everyone is thrilled with this wave of cheap money. Sponsors of defined benefit plans, in particular, have dealt with surging plan liabilities due to low interest rates.

As you can see from the chart, there has been a steady downward slide in the interest rates used to determine plan liabilities on corporate pension plans.

The Principal Financial Group, April 15 2013, Accounting Discount Rates based on yield curve of pension plans with services by Principal Life Insurance Company between January 2008 through January 2013

The Principal Financial Group, April 15 2013, Accounting Discount Rates based on yield curve of pension plans with services by Principal Life Insurance Company between January 2008 through January 2013

In fact, despite the fact that employers contributed more than $45 billion to their pension plans in 2012, pension deficits still increased by a whopping 17% to $295.2 billion by the end of 2012[1]

This begs the billion-dollar question: When will interest rates go back up?

Unfortunately, considering all of the factors that can affect interest rates—Federal Reserve policy, economic conditions and inflation, to name a few—their movement is impossible to predict.

So what’s a sponsor of a DB plan to do? Keep these considerations in mind:

  • Rates may stay low for an extended period of time. This is especially important to plan sponsors who are waiting until interest rates rise before employing a risk management strategy, including the purchase of long-duration bonds.
  • Once rates do start to rise, they’ll likely do so at a slow, steady rate.  A gradual increase in rates would temper the market losses associated with bond funds.
  • The funding relief afforded to plan sponsors by the Moving Ahead for Progress in the 21st Century Act (MAP-21) legislation will, once expired, have an impact on most plans. Minimum funding requirements have been artificially lowered for most plans compared to what they’ll be under the full Pension Protection Action legislative impact.  Plan sponsors should be considering steps to take now to plan for increased contribution levels.
  • Don’t try to time the market. After a careful analysis of their options and evaluation of their risk tolerance, plan sponsors should consider a strategy that best allows them to be comfortable in a variety of market conditions.

My suggestion is to determine your strategy now. For example, a dynamic asset allocation strategy,  could help you take advantage of changes in both interest rates and equity market performance. So even though you can’t know when interest rates will begin to rise, you’ll feel prepared for the day it happens.


In addition to blogging here, I also tweet regularly about DB topics of interest. Click to follow me on Twitter- @scottruba.

Click here to follow my Defined Benefit blog

Affiliation Disclosures

Asset allocation/diversification does not guarantee a profit or protect against a loss. Use of DAA and/or any glide path does not guarantee improvement in plan funding status nor the timing of any improvement.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.



[1] “Analysis: Pension Deficits Rise Again,” Employee Benefit News, April 23, 2013




Global domination!!

Does anyone remember the classic board game Risk? I had a good childhood friend who loved to play this game. It required a lot of patience, strategy and a good sense of timing – I could never get the hang of it. (Then Atari came along – forget about it!)

Fast forward 30 years. In the course of writing this blog, I’ve had many discussions with actuary friends. Time and time again, these same themes keep popping up: de-risking tactics take time to develop, a careful strategy must be employed and timing of your action can greatly impact the results.

I’m sure these guys would have dominated me at Risk.

In an earlier post, Helping DB Plan Sponsors Sleep at NightI discussed several ways in which DB plan sponsors can manage their risk.  Below, I’ll provide more detail on each option. You can see that patience, strategy and timing all come into play. Read more

Coming to Your Emotional Rescue

I know what you’re thinking. First Kenny Rogers and now the Rolling Stones? Why does this guy keep quoting 1980s songs and relating them to defined benefit (DB) plans?  HZ1370

Well, there were two things I did during my summer nights as a teenager growing up in the ’80s that left a lifelong impact on me – listening to music and dreaming about DB plans. Didn’t we all? More on this later….

Anyway, in my last post, I introduced the idea of dynamic asset allocation (DAA) as a DB plan risk management strategy. This strategy works particularly well with hard frozen DB plans.

Read more

The Top 10 of ESOPs

Let’s face it, Americans love top 10 lists.  David Letterman includes one in every episode of the show, and if you Google top 10 lists you will find an array of results that range from the predictable to the just plain strange.

HZ1427A recent search result included:

  • 10 absurd trademark claims
  • 10 video game characters with real-life prototypes
  • 10 competitive eating achievements NOT to be tried at home

I recently put together a top 10 list (of sorts) for Employee Stock Ownership Plans (ESOPs). It outlines in ten steps the activities that need to be completed to put a plan in place.

The ten steps are:

(1)        Engage your ESOP consultant

Read more

Welcome to the New Practice Management Blog!

One thing is for sure – we are shaped by our experiences.  And when I look back over the past 14 years of my career in the retirement industry, I’ve had some amazing experiences working  with many of our industry’s most influential advocates, hundreds of plan sponsors and committees, and thousands of plan participants. PQ11372CC

I’ve been so blessed, to learn so much from so many, that I feel obligated to pass on what I learned from these experiences and the wisdom that was shared with me. My blog will focus on practice management and development, mostly for retirement plan advisors and financial professionals, but occasionally broad concepts on marketing, sales, and service.

I’ve been working with advisors and financial professionals for nearly my entire career, but here’s what you need to know about me:
Read more