Sponsors of private-sector defined benefit plans face annual minimum contribution requirements in the years ahead above $100 billion, tens of billions of dollars more than they're now pouring into those pensions.
That's despite having directed more money into the plans than required in the past few years, according to the Society of Actuaries.
What's more, rising interest rates alone will not resolve future increases in funding requirements, the SOA said.
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Since 2011, the last time the organization projected future funding requirements, sponsors have contributed more than four times the required level of contributions to their plans, directing $276 billion into plans between 2010 and 2012 when only $61 billion was required.
The SOA is now forecasting an average minimum contribution requirement of $75 billion annually over the next 10 years, down from the inflation-adjusted $87 billion average expected in 2011. That reduction reflects two round of pension smoothing in Congress – a government accounting maneuver that allows sponsors to delay making mandatory pension contributions – and stronger-than-expected equity markets.
But the SOA warned that sponsors still face mounting obligations down the road.
"Despite the reduction in projected minimum required contribution levels between the 2011 and 2015 reports, significant increases in aggregate contribution requirements are still ahead," said SOA Managing Director of Research R. Dale Hall.
The SOA says contribution requirements are expected to rise under a range of simulated economic scenarios, peaking to an average of $110 billion by 2022.
That is under the SOA's baseline economic scenario, which assumes 10-year Treasury yields top out above 5 percent in late 2016, before settling below 5 percent soon after.
Steady increases in corporate earnings and stock prices are also assumed, as are declines in unemployment and federal government debt.
Also read: A fix for corporate pensions?
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
