September 18, 2012
--- A white
paper contends defined benefit (DB) plans are positioned to make a comeback. ---
“We firmly believe the defined benefit plan economics are
shifting and will afford employers the opportunity for lower funding costs,
thereby positioning defined benefit plans to once again become one of the most
cost effective methods of providing adequate retirement income to your
employees,” authors of the white paper by Pentegra Retirement Services
The paper says the factors and economics that caused
significant increases in required contributions to defined benefit plans are
showing signs of slowing and reversing themselves. The impact of the Pension
Protection Act of 2006 (PPA) is passed, as the provisions of this law have been
fully phased in.
The authors point out that historically low interest rates,
which cause plan liabilities to increase every time they drop, appear to have
nearly hit bottom and are poised to begin rising as soon as the Federal Reserve
suspends the accommodative support of growth through an expansionary monetary
policy. Other underlying macroeconomic trends such as the 30-year bull market
in bonds, the decade-long stagnation in the equity markets and the lack of
viable options to extend duration for pension investment managers all exhibit
signs of changing for the better.
The paper also notes that the financial crisis that began in
2008 caused sponsors of retirement programs to begin to rethink their
strategies, as it became clear that relying solely on defined contribution
plans provided inadequate retirement benefits and resulted in participants
being unprepared for retirement.
“What we have all needed was a change in the influences
impacting employer costs and those changes are under way,” the authors
The white paper, “The Future of Defined Benefit Plans Will
Change Dramatically – For the Better,” is here.