Features

• Retirement plans, including public pensions and corporate funds, must maintain a certain funding level that includes an adequate level of assets in comparison to liabilities, or amount owed to retirees. Prefunding retirement plans is a major component of sustaining a healthy funding status. Corporate retirement plans outline plan sponsor contributions in a regulatory filing with a governing body in a region, such as the U.S. Securities and Exchange Commission. Public plans adhere to prefunding requirements as outlined by legislation.
  
  

Individual Pension

• It is possible to prefund a personal pension plan. According to the Cary Citizen website, parents and grandparents can being funding a pension fund with at least $50,000 for children who have reached the age of 30 years old. The pension benefits become available to that individual upon retirement, and payments are based on the size and timing of prefunding. Results lead to assured benefit payments for life beginning at retirement. According to the Internal Revenue Service, a person can prefund his own individual retirement account too, but there are contribution limits.
  
  

Challenges

• Prefunding is typically a collaborative effort between plan sponsors and employees. Together with investment performance, prefunding efforts should keep a retirement plan well funded. In 2011, the Hawaii Public Employees Retirement System reached an impasse when its funding status dropped to a level of excessive liabilities compared with assets, despite the fact that contributions were being made. Employees faced a threat of having to increase the contribution rate to protect retirement benefits. Legislation passed in May 2011 that required only new employees to contribute more money to pensions; existing employees were not affected.
  
  

Considerations

• Legislation in a region dictates the prefunding requirements to public pension systems each year. According to a May 2010 article in the Government Executive website, the U.S. Postal Service (USPS) overpaid its pension system by $75 billion through misunderstanding of a law set in motion in 1974. Once the gross overpayment was uncovered, officials at the USPS wanted to use the money to repay government debts and toward other retirement and health funds. As of May 2011, the USPS pension condition was still a fluid situation, and lawmakers were still debating the best resolution.