If your company sponsors a pension plan, I don’t envy you. You’re sponsoring defined benefit plans, trying to maintain a benefit they believe is best for their workers — against some daunting financial and administrative odds. And the hits just keep on coming.
Despite recent increases in asset values and regulatory relief from the IRS, employers will be required to contribute $89 billion (yep, with a ‘b’) to their DB plans in 2010 and more than $146 billion in 2011, unless they receive funding relief from the federal government, according to Watson Wyatt.
“The combination of a deep recession and new pension law has landed employers in extraordinary circumstances, and they need temporary funding relief to lessen the enormous pension contributions required in the next few years,” says Mark Warshawsky, director of retirement research at Watson Wyatt. He made his case last week, testifying at an Oct. 1 House Ways and Means Committee hearing.
Although previous pension relief lowered required contributions for corporate pension plans to $32 billion in 2009 from $38 billion in 2008, without further action, employers’ contributions would explode to more than $146 billion in 2011. Under the three legislative proposals, employers’ contributions would be somewhat lower, by $10 billion to $25 billion annually with different time paths, but required contributions would still be very large.
So, without additional funding relief, the average regulatory funded status would decline slightly from 96.4% in 2008 to 93.8% in 2009, and then fall to 83.8% in 2010 and to 76.8% in 2011, WW analysts conclude.
“A crucial decision lies ahead for lawmakers,” says Gene Wickes, WW global director of benefits consulting. “Congressional and administration support for funding relief would help ensure that DB plans remain viable for employers and a vital element in the retirement security for workers. It could also save employers from making the difficult choice between large, required pension contributions or jobs, wages and capital investment.”
So, DB sponsors, at least you have a friend at Watson Wyatt — which counts for a little, right?
