DB Sponsors Face Significantly Higher Contributions in 2010

February 3, 2010 (PLANSPONSOR.com) - The funded status for most pension plans is anticipated to decline significantly and pension plan sponsors face sharply higher contributions for 2010, according to an analysis by Mercer actuaries.

A Mercer news release said it estimates that among the 874 private sector plans it studied, aggregate required cash contributions for 2010 will be 400% higher than for 2009. Unlike the last major market correction in the early 2000s, the current economic environment and the limited availability of credit could place many plan sponsors in a difficult position, Mercer contends.

A significant portion of the increase in 2010 minimum required contributions is related to amortization of the funding shortfalls,” said Craig Rosenthal, a partner in Mercer’s retirement, risk and finance business, in the news release. Even factoring in a proposed House bill that would give sponsors more time to amortize funding shortfalls, aggregate minimum required cash contribution amounts are still expected to increase dramatically for 2010 under either of two alternative amortization periods proposed.

Mercer said it expects:

  • The aggregate funding ratio for surveyed calendar-year plans to decline to 92% from 111% in 2009, and 36% of plans have funded ratios below 80% compared to only 7% of such plans at the beginning of 2009;
  • The surveyed plans’ aggregate required contributions for 2010, including amounts that can be satisfied by available credit balances, to be 126% higher than for 2009; and
  • “Net” cash contributions for 2010 (required contributions for 2010 less available credit balances) to increase by roughly 400% to $5 billion from approximately $1 billion in 2009.

Mercer noted that 90% of available credit balances belong to just 35% of surveyed plans that can fully satisfy their 2010 minimum required contributions with their available credit balance. Ten percent of credit balances belong to the remaining 65% of surveyed plans, and in most cases these plans will face sharply higher cash contributions for 2010.

Mercer’s full report, “Estimated 2010 Required Contributions and Credit Balances,”can be accessedhere.