The correlation between the sponsor’s operating profitability and plan asset returns comes directly to bear on the firm’s required contributions and its ability to make them. When operating profitability and plan asset returns are high, the probability of having to make greater than average contributions is low, but at a time when the sponsor is most able to make a contribution. Alternatively, when operating profitability and plan asset returns are low, the probability of having to make contributions is high, but at a time when the sponsor may have difficulty making a contribution. Minimizing the correlation between the sponsor’s operating profitability and plan asset returns will maximize the probability that the sponsor will be able to make contributions when required to do so |
