Retirement plan sponsors facing new challenges in 2012

Retirement plan sponsors have faced a very challenging year so far, according to Mercer’s “How Does Your Retirement Program Stack Up? 2012” report. Companies like GM and Ford have announced de-risking strategies to remove a portion of their pension liabilities from their balance sheets; the discount rates continue to decline; and the Moving Ahead for Progress in the 21st Century Act (Map-21) pension reform legislation was enacted, which offers plan sponsors a chance to lower their pension funding requirements.

The Society of Actuaries also has reviewed mortality assumptions that will likely result in plan sponsors recording a larger benefit obligation on their balance sheets and continued volatility in funded status for U.S. pension plans has pushed the deficit for S&P 1500 organizations to $689 billion in the first seven months of the year.

In its research, Mercer found that the prevalence of “risky” plans rose during 2011, and that trend is expected to continue in 2012.

Companies continue to make significant cash contributions to their pensions to improve the funded status, with more than $70 billion going toward that cause in 2011.  “We expect pension contributions in excess of service cost to remain high over the next several years, as pension deficits have increased given the decline in discount rates and poor asset returns during 2011,” the report stated.

The MAP-21 pension reform legislation will provide short-term relief to plan sponsors concerning their contribution requirements.  It remains to be seen whether the increase in the Pension Benefit Guaranty Corporation premiums will incentivize plan sponsors to fund above and beyond the new minimums offered by MAP-21 relief, the report said.

Pension risk persists and the expected return on asset assumption continues to drift downward.

Mercer is a global leader in human resource consulting and related services.

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