Cheiron’s Kalwarski tells trustees variable defined benefit plan may address some funding challenges of traditional DB plans
The variable defined benefit plan (VDB) design is beginning to catch the attention of traditional career-average DB plan sponsors who are looking for alternatives to terminating their existing plans, Cheiron CEO Gene M. Kalwarski, FSA, EA, MAAA, told trustees attending the IFEBP's 57th Annual Employee Benefits Conference in New Orleans recently.
Kalwarski spoke on a panel presentation titled "The Future of Defined Benefit Plans." Panelists also included David S. Blitzstein, Special Assistant for Multiemployer Funds for the UFCW International Union.
In a VDB plan, the impact of the pension portfolio's gains and losses are shared between the employer and plan beneficiaries. A traditional DB-based benefit is calculated, along with a variable component. In very basic terms, the participant earns the higher of the two.
The session was covered by a reporter for BNA's Pension & Benefits Daily. In an article about the session, the author relayed a statement by Kalwarski that an evaluation of the VDB reveals that the design prices benefits fairly, has a high probability of being fully funded, and fairly aligns risk-sharing between stakeholders.
A variable defined benefit plan is the same as a defined benefit plan in that retirement and longevity risks are pooled and all money is pooled and managed by a professional, Kalwarski said.
Will the VDB pass muster with regulators? "We believe this will meet the regulatory hurdles," BNA quoted Kalwarski saying. He stated that he and others have already met with regulators on the matter.
Blitzstein told trustees that he believes there is a future for DB plans, but noted that his optimism "is conditioned on our ability to rethink plan design and learn lessons from current prices," according to the BNA story.