Defined benefit and cash balance plans generally provide annual benefit accruals based on a formula outlined in the Plan Document. In plain terms, this means that the benefits owed to plan participants increase each year. To fund these increasing benefits, contributions are made by the sponsoring company, supplemented by investment returns from plan assets.

Most of our clients’ plans include a provision requiring participants to work at least 1,000 hours during the plan year to earn a benefit accrual. For full-time employees working 40 hours per week, this threshold is typically met by mid-June (for calendar year-end plans). In a stable market, this isn’t usually a major concern—sponsors expect to fund benefits and make tax-deductible contributions.

However, recent market volatility and broader economic uncertainty are prompting many business owners to revisit their funding strategy. A significant decline in plan assets could trigger higher required contributions in future years to restore adequate funding levels.

To address this proactively, we recently sent out communication to our clients raising this matter and offering assistance on how to address it. It’s one example of how The Pension Source provides forward-thinking, value-added consulting to help our clients navigate change and protect their retirement programs.

If you’re concerned about how current market conditions may affect you or your plan’s funding requirements—or if you’re considering changes to mitigate future obligations—please reach out. We’d be happy to discuss your options.