The American Rescue Plan Act (ARPA) has brought many benefits to our retirement industry. I’ve been mostly focused on the significant impact that ARPA is likely to have on multiemployer plans, but the benefits for single-employer plans are vast, as well. Specifically, minimum contributions are likely to be lower and amortization periods start anew and are extended from 7 to 15 years.
Zorast Wadia, Principal, Consulting Actuary, Milliman, has produced a wonderful article on this subject. His piece “Defined Benefit Pension Funding Resurrection” covers important topics such as contributions, amortization periods, PBGC premiums, asset allocation, de-risking strategies, benefits, taxes, etc. With regard to asset allocation, Zorast believes that “it is a good idea for plan sponsors to revisit their plan asset allocations to make sure their funding and investment policies are in sync.” He further suggests that “with funded ratios immediately improving under ARPA and minimum required contributions significantly muted over the next several years, shifting asset allocations from equities into fixed income seems like a viable alternative”. We absolutely agree, especially given current valuations for US equities.
Defined benefit plans are the key to a successful retirement. Any legislation designed to reduce the cost of providing this important benefit, while possibly extending their use, is welcomed.