ACTION ALERT

November 3, 2008

Please sign on to group letter urging immediate relief for defined benefit plan sponsors

Action Requested: Review the following letter to Congress [linked below], which urges immediate measures to mitigate the impact of the Pension Protection Act of 2006 (PPA) defined benefit pension funding rules, and include your company's name to the list of signees.

http://snipurl.com/dbletter

The letter will be sent to the Committee Chairs and Ranking Members of the House of Representatives Committees on Education and Labor and Ways and Means and the Senate Committees on Finance and Health Education Labor and Pensions shortly after the November 4 elections. The letter explains the numerous, significant threats to defined benefit pension plans and to the economy if lawmakers do not take action before the end of the year and urges them to provide relief for the unpredictable funding obligations plan sponsors are facing. The letter highlights all the key funding proposals contained in the Council's 10-point plan and also includes two additional provisions that are helpful to small businesses and therefore important to ensuring small business support. This letter is being sent jointly by a wide group of trade associations to provide a more unified message to Congress and the Administration.

Background: The current economic turmoil and market instability are creating enormous volatility in defined benefit pension plan asset values. In accordance with the PPA's aggressive funding rules, plans with dramatically undervalued assets will be forced to direct significant resources toward their funding obligations. These are resources that could otherwise be used for job creation, infrastructure and other capital investment.

To alleviate this pressure on defined benefit plan sponsors, the Council has urged a number of important reforms and clarifications, including the following key proposals, all of which are included in the group letter:

• Permit pension plans to smooth out unexpected asset losses. In the Pension Protection Act, Congress permitted pension plans to recognize unexpected asset gains and losses over 24 months. Treasury misinterpreted Congress' intent and has effectively applied a mark-to-market rule to pension plans, which will cause unmanageable burdens for companies in 2009 (with many plan losses of approximately 20% to 30% in 2008). Congress should clarify that plans can use "smoothing" to recognize unexpected asset gains and losses over 24 months.
• Permit full asset smoothing. The Pension Protection Act (PPA) only allowed unexpected gains and losses to be smoothed out to a very limited extent, so that the smoothed value must stay within 10% of fair market value. For 2009 and 2010, smoothing should be permitted without a percentage limitation. This maximizes the value of smoothing and predictability.
• Transition to the new funding rules. The "funding target" for all pension plans in 2009 should be allowed to remain at 92% funded (the current 2008 phase-in level), and plans at and below the target should be eligible for transition relief.
• Permit all new funding elections for 2009 or 2010. Although funding methods, such as which type of yield curve to use, generally must remain constant absent IRS approval, funding methods should be allowed to be changed for 2009 and 2010 without IRS approval.