Pension plan sponsors face significantly higher contributions for 2010, as the funded status for most is expected to decline precipitously.
According to a new study of 874 private-sector plans by Mercer, a New York-based consulting firm, the aggregate required cash contributions for 2010 will be a staggering 400% higher than in 2009. Unlike the last major market correction in the early 2000s, many plan sponsors face an economic environment in which limited available credit will compound their problems.
“It’s unprecedented from what I can remember,” Craig Rosenthal, a partner in Mercer’s retirement risk and finance business, said in an interview. “Unfortunately it’s a large at increase at a time when many sponsors don’t have the extra cash to divert from other places.”
The 400% increase in expected cash contributions for 2010 results in a spike to $5 billion from $1 billion in 2009. Mercer owes the expected decline in funded status this year to lower interest rates.
The aggregate funding ratio for surveyed calendar-year plans is likely to drop to 92% from 111% in 2009. Approximately 36% of plans have funded ratios below 80% compared to only 7% at the beginning of 2009. In addition, the surveyed plans’ aggregate required contributions for 2010, including amounts that can be covered by available credit balances, are expected to be 126% higher than last year.