Many Defined Benefit Plans Face Unexpected, Daunting Funding Demands
The Principal notifies plan sponsors to take action now
February 17, 2010 (Des Moines, IA) - Many employers with defined benefit plans could face unexpected and significant challenges as early as April. Required contributions could more than double this year and funding levels could drop enough to trigger benefit payment restrictions put in place by the Pension Protection Act (PPA) of 2006.
The Principal Financial Group® continues to engage Congress to provide additional funding relief as soon as possible. In the meantime, The Principal® is alerting plan sponsors to take action now to learn the status of their defined benefit plan and steps they can take to help prevent restrictions.
"The temporary pension relief from Congress and some market recovery in 2009 have led many plan sponsors to expect a better funded status and lower required contributions than they will actually experience in 2010," said Barry Young, consulting actuary. "The reality is, because interest rates have dropped, most plans will need higher contributions in 2010 and 2011. Retirement plan assets have not recovered enough to cover future liabilities. There are no guarantees of Congressional relief in 2010, so The Principal is urging plan sponsors to contact their actuaries so they are prepared."
The Principal is offering a tutorial that explains the steps employers can take now to learn potential issues their defined benefit plans could be facing, including:
- Decreases in plan funded status 2010 and 2011
- Increased required contributions for both years
- Possible automatic benefit restrictions at the end of their defined benefit plan's first quarter 2010
The Principal is also providing its clients access to resources, tools and consulting services to help them determine the potential for a lower funded status and higher contributions.
"Credit is still very tight and an unexpected cash infusion into the plan could force employers to make difficult choices in order to fund their defined benefit plans," said Young. "But if they find out now what they are facing, it will at least help them plan their cash flows early enough to possibly help prevent restrictions on their plans."
About the Principal Financial Group
The Principal Financial Group® (The Principal®) is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $284.7 billion in assets under management and serves some 18.9 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.