Employers that sponsor defined-benefit pension plans could collectively reduce their contributions by a range of $19 billion to $63 billion as a result of recently enacted pension reform legislation, Towers Watson & Co. said in an analysis released Monday, August 2.
Under the Preservation of Access to Care for Medicare Beneficiaries and the Pension Relief Act of 2010, employers with underfunded defined-benefit pension plans may elect to amortize funding shortfalls for any two plan years between 2008 and 2011 either over a 15-year period or by making interest-only payments for two years followed by seven years of amortization.
The Towers Watson analysis found that required contributions could be reduced by $19 billion to $63 billion, depending on which of the two provisions and which plan years employers choose.
Before passage of the law, the minimum required contributions in aggregate would have been $78.4 billion for the 2010 plan year, $131 billion for 2011, and about $159 billion for both 2012 and 2013.
“The pension funding relief law significantly eases some of the financial pressures employers had been facing, at least for two years,” said Mike Archer, a senior consultant at Towers Watson based in Parsippany, New Jersey, in a statement.
“However, the choices that employers make now will have an impact on the magnitude of their future pension funding obligations. In addition, the new law’s cash-flow rule … has the potential to make contribution requirements more volatile for companies that avail themselves of the relief,” he said.