Contribution Indices for U.S. Single Employer Pension Plans
In March 2016, the Society of Actuaries (SOA) introduced
contribution indices, metrics that compare pension plan contributions to benchmarks that represent the contribution level needed to meet a specific funding pace or to satisfy a specific requirement. This article explores various contribution indices for the ongoing single employer defined benefit pension system in the United States over 2009-2014 plan years, based on publicly available Form 5500 data as of Jan. 5, 2016.
Here are some highlights of the results:
- Employer contributions for more than 99% of the system met or exceeded the minimum required contributions under federal law.
- When valuing liabilities using the smoothed discount rates allowed by federal law for minimum required contributions, approximately 96% of the system exceeded their seven-year funding pace benchmarks for 2013.
- For 2013, when discounting liabilities at lower, unsmoothed corporate bond rates:
- Roughly 80% of the system fell short of their seven-year funding pace benchmarks.
- Contributions for roughly 60% of the system failed to meet the benchmark for maintaining existing unfunded liabilities.
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 Internal Revenue Code section 430 and accompanying regulations define the minimum required contribution for these plans, including the smoothing techniques applied to corporate bond rates for use in valuing liabilities.
 Estimated liabilities are based on a yield curve of monthly average spot rates for high-quality market corporate bonds published by the Internal Revenue Service at https://www.irs.gov/Retirement-Plans/Monthly-Yield-Curve-Tables.