Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Defined-Benefit Plans – Recent Report of Deficits

Lately I’ve run across several articles in the news that give a gloomy outlook for pension plans, including the State of Arizona’s Public-Pensions.  According to a recent report in the Arizona Republic, tightening budgets and poor investment performance have some wondering if the funds can continue to meet their obligations to retirees.  Citing a new report by the Arizona Chamber of Commerce and Industry, Arizona plans face a deficit of more than $10 billion – a shocking decline from the nearly $5 billion surplus reported 10 years ago.

And Arizona isn’t the only one with this concern.  The CPA Journal touched on this issue as well, and provided some startling facts:

  • The City of Cincinnati has only been making partial contributions to its Plan over the last several years.  Its unfunded liability was $913 million in 2008.
  • The PBGC, which protects retirement benefits for people when underfunded defined benefit plans collapse, reported a $33 billion deficit for the first half of 2009.  This is triple the deficit reported in 2008.
  • Further, in the month of June 2009, the PBGC assumed responsibility for 5 underfunded plans.  Their combined deficit was $233 million.

In order to respond to their deficit, the Arizona State Retirement System is requiring an extra ½% contribution over the next two years, and they will add more increase in future years to increase their funding levels.  Also, plans are continuing to move from defined-benefit plans to defined-contribution plans.  Regardless, it appears defined benefit plans are due for some reform to ensure there will be adequate funds available for the current and future retirees that are or will be depending on them.

Jessica Puckett, CPA, CFE