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June 01, 2008 at 04:00 AM
The Treasury Department and the Internal Revenue Service issued proposed regulations April 11 under section 430 of the Internal Revenue Code that provide employers sponsoring single-employer defined benefit plans with guidance regarding the determination of minimum required contributions under the new funding rules enacted as part of the Pension Protection Act of 2006. According to Treasury, the proposed regulations, together with three earlier sets of proposals, will enable plan sponsors to determine the contribution requirements that apply to their DB plans under the new funding regime, including the application of the quarterly contribution requirements. It’s important to note that although the new funding rules are generally effective for plan years beginning on or after January 1, 2008, these regulations are proposed to be effective for plan years beginning on or after January 1, 2009. “Plan sponsors, however, can rely on the proposed regulations for purposes of satisfying the minimum funding requirements for plan years beginning in 2008,” Treasury says.
Speaking of DB plans, recent estimates by Boston-based Cerulli Associates show that 20% to 25% of corporate DC plans with assets greater than $10 million use an investment consultant, while this range jumps to at least 35% for DC plans with assets between $100 million and $1 billion. Since the DC plan has overtaken the traditional DB plan as the retirement benefit of choice in corporate America, Cerulli says, pension consultants have adapted and taken on more DC clients. According to Cerulli’s 2007 survey of investment consultants, 80% expect to increase their DC business in the wake of the pension fund crisis. Only 22% of DC providers surveyed by Cerulli see long/short funds growing in the near future. “We attribute this to concerns over the suitability of such investments for individual investors, but believe that this can be overcome if long/short vehicles are incorporated into a larger asset management strategy,” Cerulli says. “For example, they could be placed inside a target-date fund or managed account where they would be least likely to be used improperly.”
