Human Resources

Fed Action May Affect Benefit Costs

Additional defined benefit plan funding may be warranted if corporate bond yields drop.

February 01, 2011
KEYWORDS funding , liabilities
/ PRINT / ShareShare / Text Size +

CUs have funding cushion

Most credit unions have funded their defined benefit plans well beyond 100% of the plan's liabilities. They have a funding cushion that can absorb the increase in liabilities due to discount rate changes and investment fluctuations.

Although not required for well-funded plans, credit unions may consider additional funding in 2011 to offset some of the increased pension expense if interest rates drop.

Falling interest rates could also lead to increased interest in liability-sensitive investment strategies among plan sponsors. Such strategies are designed to immunize a plan’s funded status to some degree from interest rate changes in either direction.

But implementing and executing liability-sensitive strategies can be challenging, especially when interest rates are at extremely low levels and continue to be artificially suppressed by the Fed.

This is the Fed’s second attempt at quantitative easing since the beginning of the financial crisis and subsequent recession.

The first attempt was substantially larger and included purchases of U.S. Treasury securities, direct obligations of government-sponsored enterprises (Fannie Mae, Freddie Mac, and the Federal Home Loan Banks), and mortgage securities backed by the same agencies.

The Fed will reinvest an additional $35 billion of monthly proceeds from maturing mortgage-backed securities into more U.S. Treasury securities during this second round.

According to the Fed’s statement, information received since the Federal Open Market Committee met in September confirmed that the pace of the economic recovery continues to be slow.

Household spending is increasing gradually. But it remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Kenneth W. Newhouse (ASA, EA, MAAA) and Scott D. Knapp (CFA) are directors of retirement plan services at CUNA Mutual Group.

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive