American Benefits Council expects big jump in pension funding obligations

Funding obligations for U.S. corporate defined benefit plans are likely to increase by more than 98% in 2021 compared with 2020, according to a study from the American Benefits Council.

In the study of 703 U.S. corporations that sponsor defined benefit plans, about 3% of all U.S. corporate pension plans, the council says the projected increase is due to the structure of pension funding rules as well as the current economic crisis that has emerged due to the COVID-19 pandemic.

The study said if the original version of the Coronavirus Aid, Relief and Economic Security Act introduced by the U.S. House of Representatives had been passed, the 703 companies would have saved more than $12 billion in 2021.

That original version included the deferment of the beginning of the scheduled phaseout of interest-rate-stabilization measures enacted by Congress in 2012 to provide funding relief following the financial crisis and the plummeting of corporate bond yields, as well as reducing the range, or corridor, of the two-year average of corporate bond index rates to calculate their pension liabilities, to 5% from 10%.

Kent A. Mason, an attorney at law firm Davis & Harman, who is outside counsel for the American Benefits Council, said in a telephone interview that companies in the fall were already calling for a delay of the phaseout, currently scheduled to begin in 2021, because the continuation of historically low interest rates since 2012 has really created "huge funding obligations."

"It's going to create a big wall of contributions in 2021 and 2022, and they very much need help," Mr. Mason said.

The coronavirus crisis is creating new complications in the form of falling asset values, and a lack of cash to make contributions has just exacerbated an existing problem, he said.

The version of the CARES Act signed by President Donald Trump on March 27 included only a contribution holiday for corporations, allowing them to defer their minimum required contributions for 2020 until next year.

For the potential Phase Four of coronavirus-related legislation, Mr. Mason said the council is working with Capitol Hill to include further pension funding relief.

The study was conducted recently by obtaining data directly from individual corporate plan sponsors, as well as consulting firms that provided data from their corporate pension plan clients.