Falling Discount Rates Send Corporate Pension Funding Tumbling

The funded status deficit of the 100 largest US corporate pension plans ballooned to $306 billion in August from $219 billion at the end of July, as their funded ratio fell to 83.8% from 87.7%, according to actuarial and consulting firm Milliman.

The firm attributed the widening deficit to a sharp drop in the benchmark corporate bond interest rates that are used to value pension liabilities, although it said its effect was somewhat dampened by strong investment returns from fixed-income asset holdings.

Milliman analyzes the 100 largest US corporate pension plans through its Pension Funding Index (PFI). In August, the PFI monthly discount rate fell 42 basis points to 2.95%, which was the lowest recorded since the index was launched 19 years ago. It was also the first time the Milliman 100 PFI had reported a discount rate below 3.00%.

“Discount rates have fallen by 110 basis points over the past 12 months, slashing corporate pension funding and hitting an all-time low for the PFI,” Zorast Wadia, co-author of the Milliman 100 PFI, said in a statement. “In fact, at this time last year the funded ratio for these plans was roughly 10 percentage points higher, at 93.1%, than we’re seeing now.”

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The projected benefit obligation (PBO) increased $104 billion during August, raising the Milliman 100 PFI liability value to $1.887 trillion from $1.783 trillion at the end of July. It was the first time the PBO had increased by at least $100 billion since a $117 billion increase in January 2015.

The aggregate asset value of the Milliman 100 PFI increased $17 billion to $1.581 trillion thanks to August’s 1.33% investment return. That was more than twice the monthly median expected investment return of 0.53% forecasted by the the 2019 Milliman Pension Funding Study.

Over the 12 months from September 2018 to August, the cumulative asset return for pensions in the Millman 100 has been 6.76%.

Milliman said that if the companies in its index were to earn the expected 6.6% median annual asset return, per the 2019 pension funding study, assuming a discount rate of 2.95% through 2020, the funded status would increase to 84.9% by the end of 2019, and 88.5% by the end of 2020.

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Tags: Corporate Pension, discount rates, Funded Status, Pension

The SEC has charged L.A.-based entertainment company Toon Goggles Inc., and its “recidivist founder” Ira Warkol for conducting a $19 million illegal securities offering. The SEC also charged Warkol for acting as an unregistered broker-dealer in connection with the offering.

Toon Goggles is a privately held company that offers access to cartoons through its online streaming service. According to the SEC’s complaint, the violations occurred between approximately August 2012 through late 2016, when Toon Goggles and Warkol held at least five private offerings through various entities, raising funds from approximately 400 investors

The SEC said that none of the securities Warkol offered and sold to investors on behalf of Toon Goggles were registered with the SEC, and none qualified for any of the exemptions from the registration requirements.

Warkol allegedly acted as an unregistered broker for the offerings, and set up boiler rooms inside Toon Goggles’ offices, purchasing lead sheets and hiring sales agents who were paid large commissions to solicit investors. The sales agents cold-called investors throughout the US soliciting investments using scripts and offering documents Warkol provided. Warkol allegedly relied on various forms of self-accreditation to determine if investors were accredited, including having investors fill out questionnaires about their financial background, but didn’t verify the information.

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Warkol allegedly used the funds that he raised from investors to pay large commissions and transaction-based compensation to himself and the sales agents. According to the complaint, it was not uncommon for as much as 35% of investor funds from the five offerings to be used to pay commissions and finder’s fees. It also said Warkol personally received at least approximately $1.75 million in transaction-based compensation.

The SEC also said Toon Goggles failed to maintain accurate and complete records of its investors, the number of shares sold to each investor, and the amount of money raised from each investor.

Without admitting or denying the allegations in the complaint, Warkol has consented to the entry of a final judgment permanently banning him from further securities sales. Warkhol will return $2 million and pay an additional fine of $190,000.

The settlement is subject to court approval.

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Tags: Ira Warkol, SEC, Toon Goggles