The latest data from the Society of Actuaries contain good newsfor the state of single-employer pension plans.

According to the SOA's recently updated analysis of pension plans in the private sector, 89% of single-employerplans were not carrying any unfunded liability at the end of 2014,and even more are fully funded when factoring in Form 5500 dataavailable for part of 2015.

That most recent analysis shows the continued improvement in theoverall status of single-employer pension plans since the financialcrisis. In 2013, 78% of plans were fully funded.

But the SOA's analysis also shows that the single-employersystem reaps considerable benefits from so-called pensionsmoothing, a statutorily permissible– albeitcontroversial–accounting practice.

The Moving Ahead for Progress in the 21^st CenturyAct, an infrastructure spending bill signed into law in 2012 byPresident Obama, included a provision allowing sponsors of definedbenefit plans to apply higher interest rates to assess futureliabilities. The pension smoothing provision was written as a “payfor” to fund the spending bill.

By allowing sponsors to use the 25-year average of the corporate bondyield, instead of lower near-term rates, plans were allowed toestimate lower liability values, in turn requiring lower annualcontributions to plans.

Lower contribution rates meant less money corporations couldwrite off at tax time, translating to more revenue the feds coulduse to fund infrastructure spending.

But pension smoothing also has the effect of artificiallyimproving pensions' funded status, say critics of the tactic.According to the SOA, the impact of pension smoothing on planfunding is considerable. When applying lower, “unsmoothed” interestrates to assess liabilities, the number of fully funded plans dropsfrom 89% to 28%.

What's more, pension smoothing vastly affects the number ofplans that contribute enough to maintain their unfunded liabilityand maintain a seven-year funding pace, or the amount of annualcontributions needed to close a funding gap over seven years. Bylaw, those two benchmarks are used to assess a plan's annualminimum contribution rate.

Using smoothed interest rates, 8% of plans with an unfundedliability contributed enough to at least maintain funding ratios in2014. Only 3% of unfunded plans fell short of that benchmark.

But when applying unsmoothed rates, almost half of the 72% ofplans with an unfunded liability did not contribute enough tomaintain funding ratios in 2014. And 55% of plans did notcontribute enough to close funding gaps within seven years.

In 2014, the smoothed corporate bond rate used to projectliabilities was around 6.5%, compared to the unsmoothed rate ofabout 4.75%.

The overall pension liability for single employer plans was $1.9trillion in 2014 when using the higher smoothed rate. As a lot, theplans were 98% funded with $30 billion in unfunded pensionobligations.

But when applying the lower unsmoothed rate, total liabilitiesjump to $2.4 trillion, with a funded rate of 91%, and $218 billionin unfunded liabilities, according to the SOA.

BenefitsPro