Jul 03, 2012 --- Contribution
activity could remain above the minimum requirement despite a bill that gives
defined benefit (DB) plan sponsors funding relief, a report contends. ---
funding bill expands the period used for determining interest rates for
calculating pension liabilities to 25 years (see “Pension Funding
Measure Addresses Low Interest Rates”). For 2012, the interest
rates must be within 10% of the average of benchmark bond rates for the 25-year-preceding
period. The provision helps plan sponsors because interest rates were much
higher before the 2008 financial crisis, and the use of higher interest rates
lowers pension liability calculations.
While the funding
relief is expected to lower the mandatory contribution requirements over the
next several years, many plan sponsors have historically contributed more than
the minimum requirement in any given year, according to a report by Goldman
Sachs Asset Management (GSAM). The firm expects that trend to
Many plan sponsors
have previously said they intend to make large contributions to their pension
plans. Even if required contributions are lowered, some plan sponsors may still
want to make large payments into their plans because of record levels of cash
on corporate balance sheets and low interest rates available in credit markets.
Plan sponsors who have
large cash balances or simply do not want to change their strategy are most
likely to remain contributing more than the minimum, Michael Moran, pension
strategist at GSAM, told PLANADVISER.