COVID-19 Has Shaken Up Vast Majority of Plan Sponsors

Considering the wide-ranging economic impact COVID-19 has had on businesses worldwide, it’s not surprising that the vast majority of defined benefit (DB) pension plan sponsors report that their companies have been broadly impacted by the pandemic. But not everything has been slowed down by the coronavirus.

Insurance firm MetLife surveyed 200 US defined benefit plan sponsors with $100 million or more in plan assets and found that 92% said the pandemic has affected their organizations, while only 8% said the pandemic has had no effect on them.

According to the survey, 47% of plan sponsors said they have reprioritized or redeployed their resources and staff internally, while 43% reported borrowing money in the form of accessing a line of credit or other financing solutions. Additionally, 42% have prioritized their cash and liquidity needs, while the same percentage of respondents said they borrowed money through the government’s Paycheck Protection Program (PPP).

There has also been a significant effect on employment during the pandemic, as 25% of plans sponsors said they have enacted furloughs or layoffs, with 10% reporting that they have filed or are considering filing for bankruptcy, and another 10% having permanently closed some operations. And the pandemic has also created a lot more work for C-level personnel as 42% of plan sponsors reported that top executives have become more involved in plan management.

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The survey also found that 40% of plan sponsors said they have borrowed money to fund pension deficits, while 35% restricted benefit payment options such as lump sums due to the impact on the plan’s funded status. Some 22% decreased or called back planned contributions, while 19% increased contributions; 15% initiated a partial plan termination due to layoffs and furloughs, and 6% went so far as freezing or closing their plans.

When asked what they consider to be the most challenging part of managing their companies’ plans in the current macro-economic environment, MetLife said many plan sponsors appear to be most concerned about maintaining or funding their plans in order to ensure that they are meeting their required benefit obligations. They also said they are focusing on their plan investments, including minimizing volatility and managing the impact of low interest rates.

The Coronavirus Aid, Relief and Economic Security (CARES) Act has turned out to be key for plan sponsors, with 89% of survey respondents saying they have taken or will take advantage of the provision in the act that extends the deadline to make plan contributions until Jan. 1, 2021.

The report also found that, despite a slowdown of annuity buyout activity during the first half of the year compared with 2019, buyout activity has picked up significantly during the second half of 2020. Of the plan sponsors who said they were interested in an annuity buyout and had a specific timeframe in mind, 81% reported that there had either been no change to their risk transfer plans, or that the pandemic has accelerated their plans. Only 19% said that the pandemic has decreased or delayed the likelihood of entering into a buyout deal.

“Despite a slowdown at the beginning of 2020 due to COVID-19, we have seen the pension risk transfer (PRT) pipeline build momentum in the third and fourth quarters,” Melissa Moore, MetLife’s head of US pensions said in a statement. “This is consistent with the poll findings, which show plan sponsors do not expect buyout activity to be delayed by either the pandemic or a protracted economic recovery.”

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Tags: buyout, CARES Act, Coronavirus, COVID-19, Defined benefit (db) pension plans, MetLife, Pandemic, Paycheck Protection Program, Pension Risk Transfer Poll, plan sponsor

The Securities and Exchange Commission (SEC) collected a record $4.68 billion in disgorgement and penalties during the fiscal year that ended Sept. 30, according to its annual enforcement report. It was also a record-breaking year for the regulator’s whistleblower program.

“This year’s report highlights enforcement’s extraordinary efforts across the country to identify wrongdoing and take meaningful action to protect American investors from misconduct,” SEC Chairman Jay Clayton said in a statement. “The report shows how enforcement took action at the onset of the global pandemic against wrongdoers who sought to take advantage of the uncertainty and volatility in the markets.”

During the fiscal year, the SEC obtained just under $3.6 billion in disgorgement of ill-gotten gains, and took in nearly $1.1 billion in penalties. The total monetary relief ordered was $330 million higher than in fiscal year 2019. The SEC also returned $602 million to harmed investors during the year, which was comprised of more than 800,000 individual payments to investors from 91 fair funds and court-appointed administrators.

The SEC also awarded $175 million to 39 whistleblowers in fiscal year 2020, breaking records in terms of both the highest dollar amount and the highest number of individuals awarded during any fiscal year. The regulator also issued the largest single whistleblower award in its history during the year, giving approximately $114 million to an individual last month. Since the Whistleblower Program was established in 2011, The SEC has awarded 106 individuals approximately $562 million.

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The commission said that during the past 10 years, the whistleblower program has been a critical component of its efforts to detect wrongdoing and protect investors, particularly when the fraud that is committed is concealed or difficult to detect. Since 2011, enforcement actions from whistleblower tips have led to more than $2.5 billion in ordered financial remedies, including more than $1.4 billion in disgorgement, of which almost $750 million has been, or is scheduled to be, returned to investors.

Each year the SEC relies on thousands of tips, complaints, and referrals—known as TCRs—to help in its enforcement actions, and, in fiscal 2020, it received more than 23,650 TCRs, a 40% increase over the 16,850 TCRs received the previous fiscal year. And, overall, it opened 1,181 new inquiries and investigations compared with 1,082 the previous year.

The report said the pandemic has disrupted many of the enforcement division’s traditional methods of conducting investigations, including the ability to take live witness testimony, conduct in-person meetings, and litigate cases in court.

“COVID-19 made fiscal year 2020 the most challenging year in recent memory. But the division demonstrated its agility and its commitment to the SEC’s mission as it moved quickly to address the ongoing crisis,” Stephanie Avakian, director of the SEC’s Division of Enforcement wrote in the report. “This rapid response protected investors and helped preserve the integrity of our markets.”