OLDWICK, N.J.--(BUSINESS WIRE)--The use of defined benefit plans to fund retirement benefits has generally been declining since the late 1980s, as falling interest rates and lower asset returns have led to higher unfunded obligations. Such plans have given way to defined contribution plans funded by a combination of employer/employee contributions, according to a new A.M. Best special report.
A new Best’s Special Report, titled, “Impact of Defined Benefit Plans on Insurer Balance Sheets,” examines trends of unfunded obligations since new accounting standards went into effect Jan. 1, 2013. In addition, the report looks at how unfunded obligations have reacted to changes in underlying market conditions.
With the new accounting standards, surplus will remain volatile as long as defined benefit plans remain unfunded. Insurers will be challenged further in 2017 as interest rates have fallen from 2016 levels, leading to increased obligations. Equity returns in 2017 may partially offset higher obligations. Prolonged periods of low interest rates and shifts to fixed income assets will create challenges for insurers going forward in narrowing the unfunded gap.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=267629.
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