Last Updated Oct 5, 2011 6:33 PM EDT
In aggregate, the funded ratio (assets divided by liabilities) for these plans is now at 72 percent, down from 81 percent at year-end 2010. Mercer believes that the funding deficit, in aggregate dollar terms, is at an all-time high since the end of World War II.
While the news sound dire, this information only affects you if you participate in a defined benefit retirement plan, whether it's a traditional pension plan that pays a monthly retirement income or a cash balance retirement plan that typically sets up a retirement account for you. If you only participate in a defined contribution retirement plan, such as a 401(k), then there's no direct impact on you -- not counting any possible drop in your 401(k) account caused by the stock market decline.
The immediate consequences for a defined benefit plan depend on the actual funded status of the plan at the end of its plan year, which is typically December 31. The following consequences apply to the defined benefit plans of businesses and nonprofit organizations (but not to the pension plans of federal, state and local government employees):
- If your plan's funded status falls below 80 percent at plan's year-end you may receive a notice by September 2012 indicating that certain optional forms of payment, such as lump sums, are restricted. Lump sum payments are common with cash balance defined benefit plans, less common with traditional pension plans. If these restrictions apply, there's a chance you might only be able to receive a portion of your total benefit as a lump sum with the rest payable as a lifetime monthly income. Any such restriction would not apply until you are notified by your employer.
- If your plan's funded status falls below 60 percent, then the plan is prohibited from allowing additional benefit accruals until the plan's funded status recovers above this level.
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