Most plans that begin their plan years in January elected to value their liabilities using the interest rate method of segment rates with four-month look-back periods. This was because this methodology allowed plans to include favorable monthly yield curves from September 2008 through May 2009 in the 24-month average used to calculate segment rates for both 2010 and 2011 valuations. These higher interest rates kept the liability low.

However, when plans begin to budget for 2012 valuations, those rates will no longer be used in the calculation of the segment rates. The interest rates segments that will be used in 2012 will be much lower than in 2011. A comparison of the September 2010 segment rates (which are the rates used for January 2011 valuations for plans using the interest rate method of segment rates with four-month look-back periods) to the current segment rates (June 2011) and the projected September 2011 segment rates if the yield curve remains the same are as follows:

Month	First Segment Rate	Second Segment Rate	Third Segment Rate
September 2010	3.78%	6.31%	6.57%
June 2011	2.27%	5.43%	6.34%
September 2011	2.06%	5.27%	6.32%

The projected segment rates to be used for 2012 valuations will result in an increase in target liability of about 5%-7%, and could increase by as much as 10% in plans where a large percentage of the liability is due to retired participants.

Moreover, asset performance to date in 2011 has been lower than expected, and it is unclear what will happen for the remainder of 2011. When one combines these two events, the resulting 2012 contribution could be much larger than in 2011 which is significant because contributions are already reaching record high levels. Milliman's annual Pension Funding Study identified a record $59.4 billion in contributions by the 100 largest corporate pensions in 2010.

In addition, plans would certify to lower adjusted funding target attainment percentages (AFTAPs) in 2012, and in the process be more susceptible to (a) having PBGC 4010 filing requirements, (b) being considered at-risk, and (c) having benefit restrictions imposed.

Unlike the calculation for 2011 contribution requirements, there are no funding relief options available for 2012. Because of the potential increases in what plans will have to contribute not only because of minimum requirements but to avoid the potential problems listed above, now is the time for plan sponsors to consider funding strategies to mitigate the upcoming liability increases. By running projections of 2012 valuation results now, plan sponsors have more time and more options to decide how to deal with the potential problems that could arise in 2012.