Inflation and federal relief likely helped corporate defined benefit plan sponsors, but they should be prepared to handle inflation risk, according to a recent report.

Because a DB plan’s overall financial health is tied by proxy to funded status, with future liabilities discounted at a rate linked to investment-grade corporate bond interest rates, corporate DB plan sponsors have seen a drop in liabilities starting in 2021, Cerulli Associates says. Some of that was due to rising inflation, according to the company.

Milliman’s Corporate Pension Funding Index shows that the funded ratio of the 100-largest corporate pension plans reached 102.4% as of February this year, Cerulli says. That’s the highest the ratio has been since 2007, according to the research firm.

DB plans with funding deficits got a lift form the American Rescue Plan Act of 2021, an extension of the earlier Coronavirus Aid, Relief, and Economic Security Act that effectively raised discount rates, Cerulli says. That led to higher funding statuses, which in turn led to decreased required minimum contributions, according to the firm.

“The legislation also provides additional breathing room for plan sponsors that can amortize their funding shortfalls over 15 years rather than seven, allowing for further portfolio derisking,” Cerulli analyst Jacob Conecoff said in a statement.

Corporate sponsors will also be able to keep their cash contributions the same as long as they can pass on the “inflated input costs” to the end consumer, according to the company.

Nonetheless, corporate DB sponsors should stay abreast of inflation for the sake of their allocations, Cerulli says.

“Their main considerations should be return impacts, liability effects, and the cash contributions necessary to achieve fully funded status. Inflation will, however, ultimately assist with funding status,” Conecoff said in the statement.

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