Contribution Requirements. Callan expects that higher discount rates and longer periods for shortfall amortization probably will reduce pension plan sponsors’ contribution requirements. Further, they expect that effect to be greatest for plans with smaller normal costs and/or larger funding shortfalls.
Callan continues that if smoothing is ever fully phased out, they anticipate contribution requirements would increase as discount rates “finally decline from historical highs to match market conditions,” but they also add that the longer amortization period “does provide a permanent reduction in annual cash requirements.”
The changes to the minimum funding requirements, Cheiron says, will result in lower minimum funding requirements. They will not affect segment rates used for other purposes such as calculation of lump sum benefits and the maximum deductible limit.
Author(s): John Iekel
Publication Date: 29 March 2021
Publication Site: ASPPA