So how many years out are pension plans usually funded?

[DebJ]

The 75 years for the Post Office sounds ridiculous no matter what, but does anyone know what is 'normal' or 'high-end' funding? On MSNBC tonight one of the commentators said WalMart wasn't funded out that far. So, how far out are they funded? I tried the Google but couldn't find anything.

Cross-posted from GD and Labor.

[Yo_Mama]

1. Some info on private defined benefit plans

http://www.irs.gov/retirement/article/0,,id=129503,00.html

Private companies are required to be "fully funded". That is, the present value of the liabilities (vested benefits) accrued to date are supposed to add up to the value of the fund. If the value falls below that amount any year, the employer has to keep making regular contributions and also make DRC contributions to bring the fund up to the legally required level.

To figure the present value, an actuarial procedure is used that discounts the future payment stream using an interest rate.

In general, private plans use a much lower interest rate (assumed rate of return on assets) than government plans. Government plans also are not subject to a lot of these requirements, which is one reason that so many of them are underfunded.

Basic explanation:
http://www.prudential.com/media/managed/PensAnalyst_MinimumRequiredContributions.pdf

Here is a helpful post with links to a lot of this stuff:
http://www.erisarulesandregulations.com/2008/04/treasury-regulation-reg-108508-08.html

To contrast with government pensions, here is a 2008 GAO report:
http://www.gao.gov/new.items/d08983t.pdf

Instead of the 100% funding ratio used in private funds, most government pensions try for 80% funding in contrast to the private sector's 100%. Also the deficit contribution is usually figured over a much longer term. Current private standards call for a seven year amortization of funding deficiencies.

To explain more of the difference in how defined benefit plan funding standards differ, this Moody's report is pretty good:
http://www.nesgfoa.org/sites%5Cdefault%5Cfiles/Moody%27s%20Pensions%2011.09.pdf

There are a lot of holes in pension funding; a plan could be 100% funded in one year and be significantly underfunded five years later. This is an older actuarial guide about the standards used and the possible consequences of changes.
http://www.actuary.org/pdf/pension/fundamentals_0704.pdf

[Yo_Mama]

2. 75 years isn't off

Private sector pensions funds are calculated infinitely - i.e., the total value of all future accrued liabilities vs the present value of fund assets. The horizon comes from when benefits are accrued or vested. In other words, when do participants have a right to future payments? The actual liability calculation doesn't change much between a 50 and a 75 year horizon, because the only such accrued benefits would generally result from survivors benefits paid over a lifetime.

The other post has a lot of technical detail. I have noticed that a bunch of people commenting on pension issues don't know the laws and regs. Part of the problem is that FASB has one set of standards and the IRS has another. And public pension plans are not subject to ERISA and usually conform to GASB standards.

Private sector pensions are governed by ERISA standards, and in 2006 a big change was made to that law (PPA):
http://www.irs.gov/retirement/article/0,,id=165131,00.html

In 2008 further changes were made. Here is the IRS page for PPA:
http://www.irs.gov/retirement/article/0,,id=165131,00.html

Theoretically the post office is a private corporation, but it is actually being treated slightly differently. Underfunded private funds are basically required to kick in the shortage in amortized payments over 7 years.

However the PO is being treated differently than state and local government pension funds, which are not governed by federal laws and for which different, laxer accounting standards are used under GASB.

[Yo_Mama]

3. More on the 75 years

The 75 year rule is applicable to the USPS pension system because if an employee dies after 18 months of service, a surviving child is entitled to a lifetime annuity if the child is disabled in some way that makes the child incapable of self-support in adulthood. So it is an accrued benefit that might easily be paid for 75 years.

In most cases, of course, the child loses benefits on 18 or on turning age 22 if the child has been a full time student between 18 and 22.
http://www.postalemployeenetwork.com/postal-employee-death.htm