Defined benefit pension plans in the U.S. had an historic year in 2012. Interest rates continued to decline in 2012, much as they did for the past three years. The lower interest rates generally resulted in escalating liabilities and deteriorations in pension plan funded status. Assets generally performed above expectations, but still could not keep pace with rapidly rising liabilities.
The Moving Ahead for Progress in the 21st Century Act (MAP-21) provided some relief from the IRS funding rules (but not SEC/FAS accounting rules) for single employer pension plans. MAP-21 was signed into law on July 7, 2012 and had an immediate impact on most pension plans by providing interest rate relief. During the second half of the year, the anticipated future effects of MAP-21 also led to renewed talks about reducing risk in pension plans. De-risking initiatives also had plan sponsors strategizing with their plan’s investment committees.
This article, originally published in Actuarial Digest, Winter 2012, reviews the major factors affecting defined benefit pension plans in 2012 and how those concerns may carry over into 2013.