Study Suggests More Pension Funding Help Needed

January 13, 2009 ( - Even with pension funding relief approved late in 2008, U.S. employers will be required to contribute more than $108 billion into their defined benefit plans in 2009.

That was the conclusion of a new Watson Wyatt study that pointed out the $108 billion total represented roughly $16 billion less than employers would have had to contribute without the funding relief. 

According to a Watson Wyatt news release about the study, even with the enactment of the Worker, Retiree and Employer Recovery Act of 2008 (See  Bush SIgns RMD, Pension Relief Bill ), both the required contribution levels in 2009 ($108.7 billion) and 2010 ($102.8 billion) will mark a significant jump from 2008 ($38 billion).

Additionally, some employers that fail to meet the minimum 80% funded threshold may have to contribute an additional $3.2 billion or lump sum benefits will be restricted under the Pension Protection Act (PPA).

The current situation could be greatly improved by combining the provisions in the Recovery Act with those in two other major relief proposals: one that widens the asset value corridor to 80% to 120% of market value in 2009 and 2010 (from the current 90% to 110%) for plans using averaged or smoothed valuation methods; and one that permits a free election of either smoothing or a full mark-to-market valuation approach in 2009.

“PPA will eventually lead to better and smoother funding,” said Mark Warshawsky, director of retirement research at Watson Wyatt, in the news release. “But its implementation could not have happened at a worse time. Now, as contributions jump, employers may be forced to make tough choices to cut costs. We hope that with more temporary funding assistance, employers will still be able to provide defined benefits plans and their employees will continue to enjoy retirement security.”

More information on the Watson Wyatt research is here .