Recent Experiences of Large Defined Benefit Plans Illustrate Weaknesses in Funding Rules
The Government Accountability Office (GAO) found that from 1995 to 2002 39 of the 100 largest defined benefit pension plans were less than 100% funded.
By 2002, almost one-fourth of the 100 largest plans were less than 90% funded. From 1995 – 2002 only six unique plans in GAO’s sample were subject to an additional funding charge (AFC), the primary funding mechanism to address underfunding, a total of 23 times. To the extent that financially weak firms sponsor underfunded plans, weaknesses in funding rules create a potentially large financial risk to the Pension Benefit Guaranty Corporation and thus retirement security generally.
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