ACTION ALERT

November 14, 2008

Contact legislators, urge pension funding legislation this year

Action Requested: Please contact your local representatives, congressional and committee leadership and/or other lawmakers with whom you have a relationship to urge their support for passage of pension funding legislation this year.

Congress will return next week for a brief "lame duck" session. It is critical that members of Congress hear from individual companies. This will improve the likelihood that lawmakers will consider legislation addressing pension concerns before the end of the year. It is important that they understand that the need is urgent and that they must consider legislation that is sufficient enough to help companies manage the volatility caused by the financial turmoil.

Background: As we have previously reported, the current economic turmoil and market instability are creating enormous volatility in defined benefit pension plan asset values. In accordance with the Pension Protection Act’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 that would contribute to economic recovery.

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 PPA, 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.

It is absolutely critical that Congress implement relief as soon as possible, preferably by attaching it to must-pass legislation taken up in a "lame-duck" congressional session before the end of the year.

Resources: These measures are described in greater detail in a number of documents prepared by the Council.

• Defined Benefit Plan Funding: The Effect on Plans, Plan Participants and Jobs provides specific examples of the funding rules’ impact on certain plans.

• The Need for Funding Legislation: Questions and Answers addresses some of the frequently asked questions about the necessary relief.

• The November 12 group letter to Congress urges immediate action on pension funding.

Please help: Key contacts and resources are provided below. For more information or assistance, contact Lynn Dudley, senior vice president, policy, at (202) 289-6700.

Congressional directory and House/Senate leadership
http://capwiz.com/appwp/directory/congdir.tt

House Ways and Means Committee
http://capwiz.com/appwp/directory/committees.tt?commid=hways

House Education and Labor Committee
http://capwiz.com/appwp/directory/committees.tt?commid=hecon

Senate Health, Education, Labor and Pensions (HELP) Committee
http://capwiz.com/appwp/directory/committees.tt?commid=slabo

Senate Finance Committee
http://capwiz.com/appwp/directory/committees.tt?commid=sfina