Actuaries Find Pension Funding Challenges, Suggest New Ways to Preserve Pensions
FOR IMMEDIATE RELEASE
October 11, 2011
Agency Finds Recommendations Consistent with Administration Premium Proposal
WASHINGTON–An independent study by the Society of Actuaries reports that pension funding requirements will increase in the future and suggests new ways to help companies meet the challenge and preserve pensions.
The report, "The Rising Tide of Pension Contributions Post-2008: How much and when?", suggests that funding and other regulatory requirements might be eased for companies that pose less risk to the pension system, and makes other suggestions both for companies and regulators. It includes ideas on reducing pension costs and volatility, on possible regulatory changes to strengthen pension plans, and on new approaches to manage the wide array of pension risks.
"This report recognizes that pension sponsors face real challenges," said Josh Gotbaum, PBGC Director, "but it also suggests ways to help companies meet them - ways that are consistent with the Administration's efforts to preserve plans."
Gotbaum noted that the Administration has proposed PBGC premiums be eased for companies that pose less risk, to encourage them to continue to provide defined benefit pensions. "The actuaries suggest pension funding and regulatory requirements should be flexible, that sound companies with well-funded pension plans should face less restrictive rules than companies that have more risk of failure," Gotbaum said. "That's consistent with the Administration's premium proposal. The actuaries are suggesting that we consider it for funding and in other areas as well."
The actuaries' report also suggested that funding requirements might be redesigned to be countercyclical, to avoid hitting companies hardest when they can least afford to pay. Gotbaum noted that the Administration's premium proposal was designed the same way, to avoid PBGC premiums spiking when they are least affordable.
For their report the actuaries relied on the Pension Insurance Modeling System created by the Pension Benefit Guaranty Corporation. PBGC provided the computer software program to the Society of Actuaries both to allow external validation and to enhance the Society's research.
Among other findings, the actuaries' report shows that employers' pension contributions are likely to increase significantly over the next five years. It notes that companies can decide to freeze their plans and leave the voluntary defined benefit pension system if they choose. The actuaries make several suggestions, both for companies and regulators if they want to avoid that result.
PBGC is a federal corporation that guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 27,500 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues and never has. Operations are financed entirely by insurance premiums paid by companies that sponsor pension plans and from the assets and recoveries on behalf of plans that have been assumed by PBGC.
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PBGC No. 12-01