New Pension Funding Regulations: Makes ALM Even More Important

On June 30, Congress passed the Moving Ahead for Progress in the 21st Century Act, part of a $120 billion highway and student loan bill, that includes significant pension funding relief as well as higher PBGC premiums applicable to single-employer (corporate) defined benefit plans; the President is expected to sign the bill into law. The funding relief will be welcomed by many plan sponsors as a way to fight low corporate bond yields and avert the rising tide of contributions; indeed, the Society of Actuaries estimates that aggregate contributions for 2012 will be 43% lower under the new legislation compared to current law. On the other hand, a sharp increase in PBGC premiums may encourage some plan sponsors to decrease their asset-liability gaps (and hence lower their PBGC premiums) by contributing more than the minimum required contribution (MRC).