US - Short-term funding relief for employers will protect pension funds from sliding interest rates and simultaneous drops in asset values, according to Watson Wyatt.
Kevin Wagner, a senior retirement consultant at the firm said: We estimate that the use of inappropriately low interest rates may lead to as much as $40bn in additional employer contributions during 2002. For some employers it's as much as $10,000 per employee - a huge financial hit.”
Wagner explained that the original concept behind pension funding laws was to allow employers to budget over time with flexibility, so they could fund more in good market conditions and less in bad conditions.
But funding rules have changed so much over the past 15 years that employers are not allowed to fund appropriately over the life of a plan,” he said.
Forcing companies to put too much money into their pension plans results in additional corporate tax deductions, which decreases Federal revenues just when the government needs money the most.”
Watson Wyatt has proposed short-term relief for this year until it is clear if the recent funding ratio decline is a short-term effect of distorted market values due to the events of September 11, 2001 or a more long-term financial trend. The firm explained that interim relief from excess funding would allow plan sponsors to use cash to strengthen their balance sheet amid the current economic downturn.
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