Overfunding isn’t a sign your plan is “winning.” It’s a signal the design is misaligned. In traditional Fixed Interest Crediting (FIC) plans, the disconnect between how assets grow and how liabilities are measured creates predictable—and preventable—surplus.
Here are the three primary drivers.
1. Asset Returns Outpace the Fixed Crediting Rate
Most FIC plans credit participants a steady 4–5%, while assets are invested for higher long-term returns (often 6–8%).
That spread doesn’t disappear—it compounds:
- Assets grow at market rates
- Liabilities grow at a fixed rate
- The difference accumulates as surplus
Over time, this creates structural overfunding—even when everything is “working as intended.”
2. No Alignment Between Assets and Liabilities
This is the core flaw.
FIC is static. Markets are not.
Without Market Return Crediting:
- Investment gains are not reflected in liability growth
- There is no mechanism to self-correct
- Surplus builds with no efficient release valve
You’re effectively running two systems that never reconcile.
3. Contribution Momentum Continues After the Need Is Gone
Many plans keep contributing at historically high levels, even after funding targets have been met or exceeded.
Why:
- No real-time funding feedback
- “Max contribution” mindset persists
- Advisors aren’t coordinating actuarial + investment strategy
The result is avoidable excess—capital going into a structure that no longer needs it.
The Real Diagnosis
Overfunded plans are not a market problem. They are a coordination problem between:
- Crediting strategy
- Investment performance
- Contribution discipline
FIC plans allow these to drift apart. MRC keeps them synchronized.
Bottom Line
If your plan is overfunded, it’s not because returns were too good—it’s because the design didn’t adapt.
Call to Action
Before your next valuation or Form 5500 filing, run a Cash Balance Funding Risk Review.
You’ll get:
- A clear view of overfunding exposure
- Identification of trapped capital risk
- A redesign path using MRC
Because once overfunding limits your deductions, the opportunity cost is already locked in.
Additional Considerations
Fixed Interest Crediting May Be More Appropriate When:
- Short-duration plans that are approaching termination
- Sponsors with very low risk tolerance or preference for contribution smoothing via fixed assumptions
- Situations where administrative simplicity outweighs funding efficiency
Limitations/Risks for Market Return Crediting:
- Increased variability in credited interest year-to-year
- Need for proper investment alignment and fiduciary oversight
- Potential communication complexity with participants
This content is provided for educational purposes only and should not be construed as specific recommendations or investment advice. The scenarios outlined are intended to be illustrative of one outcome of different crediting strategies, and your specific situation can and will vary. Always consult with your investment professional before making important investment decisions.