To fund now, or to fund later?
That is the question
An analysis of funding and financing options for underfunded pension plans
During the summer of 2012, President Obama signed the MAP-21 Act (Moving Ahead for Progress in the 21st Century Act). This legislation gives pension plan sponsors greater flexibility in the timing of their contributions (i.e., allows them to “fund later” than would have been required under the prior law). However, MAP-21 also significantly increases PBGC (Pension Benefit Guarantee Corporation) premiums for underfunded plans.
This Russell Practice Note responds to the following questions:
- May it make sense for corporations to contribute more than the required minimum (i.e., to “fund now”)?
- If so, what are the options for financing those contributions?
- What factors should a sponsor consider in answering these questions?
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.