Funding your pension plan? These 3 strategies may help
Once you’ve identified the timeframe for terminating your defined benefit (DB) plan, you’ll need to pick a funding strategy that suits it. The 3 most common types of funding strategies we see are:
- Contributing the minimum required amount for an ongoing plan until the year you terminate
- Contributing a level amount until the year you terminate
- Fully funding the plan under ongoing Pension Protection Act (PPA) funding rules
To find out how each type works, the advantages, and disadvantages of each, check out our chart (PDF).
In addition to the pattern of annual contributions, this chart demonstrates the present value of the total contributions—an important metric when you’re planning to terminate a defined benefit plan. The present value quantifies the cumulative cost, which reflects the timing of contributions and represents the total contributions for each strategy in today’s dollars. It also incorporates the funded status at termination and all costs prior to this—all in one metric.
We can help
Whether your defined benefit plan has been frozen for years or you’re seeking to terminate as soon as you can, Principal has a team with DB expertise that can help meet your needs. Give us a call at 800-952-3343, ext. 22681, or contact your advisor, to get started.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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