Proposed Pension Funding Stabilization: How Does It Affect the Single-Employer Defined Benefit System?

by Joseph Silvestri, SOA Retirement Research Actuary

The SOA recently released its latest research report from the Society of Actuaries (SOA) Rapid Retirement Research Initiative. The initiative’s second report, Proposed Pension Funding Stabilization: How Does It Affect the Single-Employer Defined Benefit System?, augments our first report and focuses on a timely issue with significant actuarial aspects – proposed changes to the laws affecting the funding of U.S. single-employer DB pension plans through the pension funding stabilization provisions in the Senate passed MAP-21 bill.

This report illustrates the shorter-term implications of the provisions, such as the deferral of cash contribution requirements, and broader aspects of the bill, notably its effect on the volatility of contribution requirements, disclosures and plan funding levels.

In considering these issues, of course, it is important to recognize that many additional considerations go into the assessment by policymakers of any pending legislation, such as the state of the economy, effects on business operations of plan sponsors, and, in the current environment, the effects of declining interest rates.

Key findings from the report show:

  • The bill 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 percent in 2012), but would increase over time.
  • The predictability of contribution requirements would show some improvement in the short term but little change over the long term.

The report’s findings should in no way be viewed as taking a position on pending legislation or lobbying for a particular viewpoint. The Society of Actuaries does not take positions on legislative proposals, either for or against, and is not taking a position, positively or negatively, on this legislation. Rather, this research initiative and others like it are reflections of a core function of the SOA’s mission, namely to serve the  public interest by providing non-partisan objective research, using actuarial methodology, on issues of important public interest and concern.

I invite you to review the analysis in the report and if you have comments or feedback, share them below, or feel free to contact me at jsilvestri@soa.org.

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