Take Bold Steps to Fund and Meaningfully Reduce Liabilities: What CFOs Need to Know
Pension deficits will not resolve themselves. Billions of dollars have been contributed to fund up plans in 2018. Why? There has never been a better time to make a contribution, close funding gaps, and take steps to meaningfully reduce risk.
There is virtually no chance for an average DB pension plan to earn its way to full funding. Mature pension plans can lose more than 2% of funded status per year due to substantial payouts to retirees. The more underfunded, the bigger the effect. It will take contributions to close this gap, and now is the time to fund. Most plan sponsors have until September 2018 to take advantage of the larger deduction offered by 2017 tax rates, which offers meaningful savings and creates shareholder value. Along with funding, sponsors should formulate detailed plans to significantly reduce the size of their plans to prepare for a lower-risk future.
Authors: Rohit Mathur, SVP and Head of Global Product and Market Solutions; Scott Kaplan, SVP and Head of Pension Risk Transfer (PRT); Margaret McDonald, SVP, Actuary, Head of PRT U.S. New Business and Distribution Support