A combination of events could result in significantly higher pension contributions for many large U.S. companies in coming years, a study by Watson Wyatt Worldwide says.
Lower interest rates increased reported pension liabilities for most companies this year. That, and the gradual shift in recent years to the projected unit credit method of funding, will result in increased pension contributions for many companies, said William Minor, Wyatt consultant.
The projected unit credit funding method, or back-loaded funding method, gradually increases pension costs as a percentage of pay throughout a worker's career.
Already, according to the study, the ratio of overfunded pension plans dropped to 33% in 1995 from 48% in 1990. Mr. Minor said pension plans have three viable alternatives: increase contributions; scale back benefits; or earn higher returns on assets, which generally means an increase in the equity allocation.