Society of Actuaries: Expect long-term increase to minimum required contributions

Minimum required contributions for private-sector defined benefit plans have dipped in recent years, but are poised to rise again in the long term, the Society of Actuaries said.

The professional organization released a report Wednesday updating its 2011 projections. After factoring in the increased corporate plan contributions over the minimum required, improved market performance and two changes in federal pension law since then, SOA officials now expect minimum required contribution levels over the next 10 years (from 2014 to 2024) to decline 5% from the 2011 projections, averaging $75 billion annually instead of $79 billion.

“But there are still significant increases ahead (after that); plans should not look at that one number,” said R. Dale Hall, SOA managing director of research, in an interview. “People (in DB plans) are getting older and that will still lead to minimum required contributions increasing over the long term.”

The report also expects aggregate contributions to rise. Plan sponsors today are making contributions in the aggregate at least four times as big as the minimum required, but, “in today’s environment, all of us should keep an eye on it because minimums are increasing,” Mr. Hall said.

SOA officials used the Pension Insurance Modeling System developed by the Pension Benefit Guaranty Corp. to project changes in funded status and contribution requirements for a sample of 400 single-employer plans. SOA also worked with Moody’s Investors Service to create a range of macroeconomic scenarios for plan sponsors to consider as they project their own future funding requirements. “It can give some good insight in risk management for plans,” Mr. Hall said.

The report, “The Rising Tide of Pension Contributions Post-2013: How Much and When?” is available on SOA’s website.