SOA Study: Private Pension Costs are on the Rise

While challenges remain for many plan sponsors, system-wide these challenges should not be considered insurmountable, says Joseph Silvestri, FSA, retirement research actuary with the SOA and lead researcher of the report.

"The data shows that employers, on average, have been contributing well in excess of the minimum requirements for the last several years," Silvestri says. "While the system as a whole is successfully navigating the rising tide of minimum required contributions, there will be individual employers for whom the pension plan funding requirements pose a greater short-term challenge." 

Silvestri says defined benefit sponsors may consider revising funding choices to sustain their pension plans. Potential strategies include adopting a contribution policy that "smoothes" pension contributions regardless of market performance. For those that carry equity risk, strategies may include adjusting asset portfolios to reduce the effects of market volatility and declining interest rates.

Options could also include linking minimum required contributions to the sponsor's equity portfolio risk, credit rating, plan maturity or a contribution thereof, and changing minimum funding requirements to make them less sensitive to interest rates and equity market fluctuations.