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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: The funding relief provided to defined benefit plans in the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act (PRA 2010, P.L. 111-192, signed June 25, 2010) has thus far been “quite modest given the substantial funding obligations ahead,” said Towers Watson in the March 2011 U.S.- Insider newsletter. “The required contributions still loom large for years to come relative to the actual contributions that sponsors made in recent years.”
Towers Watson projects that the average defined benefit plan funding ratio is improving because of increased contributions by plan sponsors and positive asset returns.
The average funded status without considering the PRA 2010 funding relief is projected to be 88.8% for plan year 2010, dipping down to 77.5% for 2011, and rising gradually back to 91.3% for 2014. Towers Watson projects that minimum required contributions without funding relief is projected to be $91.2 billion for 2010, sharply increasing to $163.0 billion in 2011, $175.4 billion in 2012, $148.5 billion in 2013, and $135.5 billion in 2014.
Under PRA 2010 funding relief, defined benefit plan sponsors may elect to use one of two relief methods to amortize funding shortfalls for up to two plan years between 2008 and 2011. The “15-year rule” permits plan sponsors to amortize a funding shortfall over 15 years. The “2+7 rule” permits plan sponsors to make interest-only payments for the first two years followed by the standard seven-year amortization requirement. If elected, the same rule must be used for both years. The relief years need not be consecutive (see Report 130.1.-1).
Towers Watson projected an average funded status of 77.4% for 2011 if only three out of every ten plans elected to use the funding relief, and that most of the “relief” plans elected the 15-year rule. The minimum required contributions would be lower by a total of $16.3 billion in 2010, 2011, 2012, and 2013 under the funding relief scenario ($88.6 billion versus $91.2 billion in 2010; $155.3 billion versus $163.0 billion in 2011; $170.5 billion versus $175.4 billion in 2012; and $147.3 billion versus $148.5 billion in 2013). However, in 2014, the minimum required contribution would be slightly larger under the funding relief scenario ($135.8 billion versus $133.5 billion).
Part of reason for improved results in 2010 is a 15.1% expected return in equities (compared to an earlier projection of 3.7% by Towers Watson) and bond returns for 2011-2013 that are 1.2 to 1.8 percentage points lower than those assumed earlier by Towers Watson. During 2011-2013, the composite corporate bond rate declined by 35 to 65 basis points from what had been previously assumed.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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