Enterprise funds will reduce contribution leverage

The relief combined with already improved funded ratios creates a multi-year contribution holiday for many companies, said Michael Moran, senior pension strategist at Goldman Sachs Asset Management in New York. “They’re not looking to make contributions in the next few years because they don’t have contribution requirements and a lot of them are fully funded,” Moran said in an interview.

While minimum funding requirements have dropped, corporations have the ability to make discretionary contributions. However, current geopolitical events could also prevent companies from pulling the trigger on these types of contributions, Mr. Jarboe said.

He noted that the current market volatility resulting from the Russian invasion of Ukraine could have a chilling effect.

“Companies are probably going to be a bit more careful with cash to make sure they have strong balance sheets and weather any storms that may come their way,” Jarboe said.

He also noted that rumors of legislation raising the U.S. corporate tax rate may discourage corporations from making discretionary contributions. One of the drivers of the current strong funded ratio of company plans was the abundance of large contributions made by companies in 2017 and 2018.

U.S. corporations mostly made large contributions in those two years to take advantage of tax breaks set to expire due to the passage of the President’s Tax Cuts and Jobs Act. then Donald Trump, in December 2017. law reduced the corporate tax rate to 21% from 35%.

Since the law allows plan sponsors to deduct a portion of their pension contributions based on its tax rate, companies made several years of contributions before the September 15, 2018 tax deadline to deduct them. at the highest rate.

If a new law raises the corporate tax rate, corporations will likely wait until after the applicable deadline to make higher contributions, Jarboe said.

The only exception, he said, is that some company plan sponsors might want to make discretionary contributions if it allows them to terminate their plans. This, however, is unlikely among the grand plans followed by IP for this story. Jarboe said the vast majority of terminations were for plans with less than $1 billion in assets.

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