Pension Funding Stabilization Not Long-Term Cure

June 19, 2012 ( – Pension funding stabilization provisions of a bill currently going through Congress would provide pension plan sponsors some short-term relief, but would not address long-term problems.

By Rebecca Moore | June 19, 2012
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Researchers for the Society of Actuaries (SOA) say the pension funding stabilization provisions in the Moving Ahead for Progress in the 21st Century Act (MAP-21) would effectively prescribe a pattern of valuation interest rates for the next several years, with a significant increase in 2012 rates followed by declines in subsequent years.   

Initially, aggregate contribution requirements would be significantly less than under current law (approximately 43% in 2012), but would then be expected to increase each year until ultimately exceeding the amounts that would have been required under current law.   

The report, "Proposed Pension Funding Stabilization: How Does it Affect the Single-Employer Defined Benefit System?" indicates the predictability of contribution requirements would show some improvement in the short term but little improvement in the long term, because the funding stabilization provisions do not address non-interest-rate sources of volatility and are less likely to affect valuation rates in the future.    

The prescribed rates would mask market-related changes in funded status for several years. For example, funded statuses in 2013 and 2014 would likely not be materially affected by increases or decreases in interest rates from today’s levels.