U.S. employers will be required to contribute more than $108 billion into their defined benefit plans this year, according to an analysis by Watson Wyatt. Although that's roughly $16 billion less than employers would have had to contribute without the passage of a new pension funding relief law late last year, Watson Wyatt pension experts say employers will still need additional relief.

"This new law is a positive first step," said Alan Glickstein, a senior retirement consultant with Watson Wyatt. "However, we urge lawmakers to pass additional temporary funding relief as companies transition to new, more restrictive funding requirements while battling declining pension asset values and a weakened economy."

Watson Wyatt estimates that even with the enactment of the Worker, Retiree and Employer Recovery Act of 2008, both the required contribution levels in 2009 ($108.7 billion) and 2010 ($102.8 billion) will mark a significant jump from 2008 ($38 billion). Additionally, some employers that fail to meet the minimum 80 percent funded threshold may contribute an additional $3.2 billion. Otherwise, the payment of lump-sum benefits would be restricted under the Pension Protection Act (PPA).

While the Recovery Act will provide some relief, given the magnitude of declines in pension assets and funded status, companies will still struggle to meet the large and unexpected contributions required in the next two years. The current situation could be greatly improved by combining the provisions in the Recovery Act with those in two other major relief proposals: one that widens the asset value corridor to 80 to 120 percent of market value in 2009 and 2010 (from the current 90 to 110 percent) for plans using averaged or smoothed valuation methods; and one that permits a free election of either smoothing or a full mark-to-market valuation approach in 2009. Both of these proposals will be put before Congress as it reconvenes this month and are strongly supported by various associations representing employers and funds nationwide.

According to the Watson Wyatt analysis, each proposal independently would provide modest relief. Combining both with the Recovery Act would generate more significant improvement in plan funded status and reduction in required contributions. Plans would likely move to full smoothing valuation methods for both assets and liabilities.

"PPA will eventually lead to better and smoother funding," said Mark Warshawsky, director of retirement research at Watson Wyatt. "But its implementation could not have happened at a worse time. Now, as contributions jump, employers may be forced to make tough choices to cut costs. We hope that with more temporary funding assistance, employers will still be able to provide defined benefits plans and their employees will continue to enjoy retirement security."