Data and Research

SOA Review Shows Positive Funding Picture for DB Plans

Using the smoothed assets as allowed and smoothed bond rates require by current law to discount the liability, the 2014 total funding target liability for single-employer plans of $1.9 trillion was 98% funded, the SOA found.

By PLANSPONSOR staff editors@plansponsor.com | June 01, 2017

Using the Department of Labor (DOL) Form 5500 database as of October 28, 2016, the Society of Actuaries (SOA) finds that for single-employer defined benefit (DB) plans, using the smoothed assets as allowed and smoothed bond rates require by current law to discount the liability, the 2014 total funding target liability of $1.9 trillion was 98% funded, with and unfunded liability of $30 billion.

Based on unsmoothed high-quality corporate bond rates and the market value of assets, the estimated liability of $2.4 trillion was 91% funded, with an unfunded liability of $218 billion.

According to the SOA report, weighted by plan liabilities, more than 99% of single-employers DB plans contributed at least the minimum amount required by law for both 2013 and 2014. Preliminary data for 2015 indicates results similar to 2014.

Based on smoothed rates for 2014, about 8% contributed at least enough to maintain their unfunded liability and 3% fell short of that benchmark. Eighty-nine percent had no unfunded liability. Corresponding percentages in 2013 were 18%, 4% and 78%, respectively. The SOA explains that fewer plans met the benchmark in 2014 than in 2013 because fewer plans had an unfunded liability in 2014.

For 2014, 7% of single-employer DB plans contributed at least enough to close their funding gaps within seven years, while 4% failed to meet that benchmark. Respective percentages for 2013 were 16% and 6%.

However, using the lower, unsmoothed rates, SOA finds more plans had an unfunded liability and fewer plans’ contributions were sufficient to maintain their unfunded liability. For 2014, 28% had no unfunded liability, up from 16% in 2013. About 44% of plans’ contributions were insufficient to maintain their unfunded liabilities for 2014, down from 53% for 2013. In addition, 55% contributed less than needed to close the funding gap within seven years, down from 73% in 2013.

The SOA’s full report is here.

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