Cash Balance Plans, Beware the Details

This quarter’s stock market rally has been a boon to defined benefit (DB) pension plan funding, lifting funded ratios above the 80% mark. Yet this bit of good news does not change any of the challenges—and uncertainties —that DB plans face in the near term: a recovery from the enormous losses in 2008 (after all, the recent rally puts the S&P 500 only a few percentage points above its December 31, 2008 level), potential increases in interest rates and inflation, affecting liability valuations and cost-of-living increases, uncertainty in funding and accounting regulations, and, most importantly, the impending required 2008 and 2009 contributions, on which we reported in last quarter’s A/L Monitor. The news for the government is not much better: the Pension Board Guaranty Corporation (PBGC), the agency charged with insuring private pension plans, is reporting a $33.5 billion deficit, largely due to its take-over of pension plans of bankrupt companies .