Today, most plan sponsors’ contributions to their defined benefit pension plans are being driven by the results of their pension plans’ solvency valuations.
Unfortunately, the “one-size-fits-all” guidance used by most plan sponsors to calculate their solvency liabilities means that they could be contributing too little (or too much!) to their plans. In fact, we’ve run into examples of plans whose solvency liabilities were off by 5% to 10%. This could mean that some plans are underfunded (or overfunded) by millions or even tens of millions of dollars.