An analysis of the funding policies of more than 250 pension plans conducted by Mercer reveals that 27 percent fail to develop and then adhere to a formal, well-documented funding policy. Altogether, 51 percent of sponsors surveyed fund only the minimum amount required by law, either by default or intentionally, Mercer says.

“An effective pension funding policy helps an employer better manage the defined benefit pension plan’s financial risks, costs and returns, balancing a long-term view of funding and risk management with a blueprint for determining each year’s contribution,” says Mercer spokesman Bob Moreen. “The current financial environment is providing plan sponsors with their first ‘real time’ test of the consequences of adverse markets for minimum or trigger-avoiding contribution strategies. These turbulent economic conditions will underscore the need for stronger risk management, stress-testing of outcomes under a range of scenarios and adopting more proactive contribution and funding strategies.”