Strong pension fund growth good news

WHEN IT COMES to pension plan funding, there is some good news for a change.

As we report on page 3, large employers' pension programs are, on average, nearly fully-funded. And the news gets even better. In just one year, the number of employers with overfunded pension programs doubled.

This is a huge change--a result driven by several consecutive years of double-digit investment returns--from just a few years ago when average funding levels sunk to barely above the 80% mark.

That fall from the lofty funding levels of the 1990s, when an overheated stock market drove up the value of plan assets, in many cases was the catalyst for employers to reconsider whether to continue their pension plans or freeze them and, instead, enrich their 401(k) plans, which have costs that are far more predictable.

As the large-employer pension plan funding survey by Milliman Inc. clearly shows, the so-called "perfect storm" of declining asset values and rising liabilities due to falling interest rates that hit plans earlier in the decade did not last forever.

Accordingly, employers evaluating whether to continue their defined benefit plans should not base those decisions on a brief, if nasty, economic period.

What should be the basis of corporate decision-making is whether their plans work best for the company and its employees. The most important questions companies should be asking are what type of plan can they afford over the long haul, and which type of plan will be most likely to attract and retain the most valuable employees.