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U.S. Employers Face Big Pension Funding Tabs Without Relief

By Stephen Miller  10/9/2009

U.S. employers would be required to contribute $89 billion into their defined benefit (DB) pension plans in 2010 and more than $146 billion in 2011, unless they receive additional funding relief from the federal government, according to an analysis by consultancy Watson Wyatt.

Without additional funding relief, the average regulatory funded status of DB pension plans would decline slightly from 96.4 percent in 2008 to 93.8 percent in 2009, and then fall to 83.8 percent in 2010 and to 76.8 percent in 2011, the analysis found.

The combination of a deep recession and the Pension Protection Act's funding requirements "have landed employers in extraordinary circumstances, and they need temporary funding relief to lessen the enormous pension contributions required in the next few years,” said Mark Warshawsky, director of retirement research at Watson Wyatt, who testified on these points at an Oct. 1, 2009, House Ways and Means Committee hearing.

Watson Wyatt analyzed the projected required contributions for single-employer DB plans under various scenarios: the existing law (including Sept. 25, 2009, IRS guidance) and three legislative proposals currently under consideration.

“A crucial decision lies ahead for lawmakers,” said Gene Wickes, global director of benefits consulting at Watson Wyatt. “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.”

Stephen Miller is an online editor/manager for SHRM.

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Pension Funding Declines, Despite Asset Gains, SHRM Online Benefits Disciplines, August 2009

Pension Funding Crisis Alters PPA Enforcement, SHRM Online Legal Issues, May 2009

Liability-Driven Investing Strategies Proved Worth, SHRM Online Benefits Discipline, February 2009

Countering Pension Risk Myopia, SHRM Online Benefits Discipline, February 2009

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