March 21, 2010
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With Multi-Billion Dollar Pension Funding Deadline Fast Approaching, Business and Labor Prepare for Hard Hit
Non-Profit and Business Leaders Make Plea for Immediate Congressional Action on Pension Funding Relief
Washington, DC — In less than 30 days employers will be forced to make contributions into their defined benefit pension plans. Today, a coalition of employers held a telephonic press conference call with Congressman Pat Tiberi (R-OH) and stressed the urgency of enacting temporary pension funding relief immediately to save and create American jobs.
"Every week we wait, it puts employees and employers in a worse position," said Rep. Pat Tiberi (R-OH), who along with Rep. Earl Pomeroy (D-ND) is sponsor of congressional legislation on pension funding relief. The Congressman called the legislation "not just a pension bill, but a jobs a bill." He continued, "With a little more time to meet government mandates, employers will be able to keep employees working while giving them the security of knowing their pensions will be there when they need them."
April 1 marks the date for employers to certify their funding status and April 15 is the deadline for employers to make their quarterly contributions into their defined benefit pension plans. Contributions for 2010 more than double the 2008 levels , and both employers and employees are preparing themselves for the repercussions of the April cash drain. These looming obligations will force companies to continue, and in many cases step up, actions to ensure cash on hand which may include cutting jobs and withholding investment in the company.
Economic turmoil and market volatility have created massive artificial losses in pension plan asset values. As a result, employers are being forced to set aside billions of dollars for pension funds instead of using the cash to save and create jobs. This unexpected cash drain will hit employers in less than a month, and will have severe consequences unless Congress takes action today:
- Job losses are a reality if Congress does not enact temporary pension funding relief. Fully 68 percent of defined benefit plan sponsors have indicated that unexpected cash needs associated with their defined benefit plans would cause the employer to make other cuts, including cuts in the areas of hiring and workforce trainingii
- In years of contraction, pension funding rules are responsible for roughly 4 percent of the reduction in employment.iii
- Money for these unexpected contributions is drained from other crucial sources. Contributions to defined benefit plans directly constrain a company's internal financial resources. For each dollar of mandatory defined benefit plan contribution, between 60 and 70 cents is diverted from capital expenditures such as infrastructure and human resources. iv
"The longer we wait, the more jobs will be lost," said American Benefits Council President James A. Klein. "Moreover, we remain concerned about the conditions that may be attached to funding relief. These conditions have the effect of either placing constraints on fundamental corporate transactions or severely reducing the value of relief. Many companies will not be able to comply with these limitations and still compete in the global economy. These employers will have to refrain from using the relief legislation and will be compelled to continue layoffs."
A wide range of plan sponsors expressed a heightened sense of urgency as the April deadlines approach:
In their statement to the House Committee on Ways and Means, Girl Scouts of the USA testified that "any shift in revenue to cover pension costs comes directly from sources that would otherwise be spent on girl programming. In short, this increase [in pension contributions] translates into approximately 214,000 girls losing the benefits of Girl Scouting." v
Girl Scouts of the USA has 3.4 million members throughout the United States.
Randy Mullett, Vice President of Government Relations and Public Affairs, Con-way Inc., stated, "Enactment of pension funding relief is very important to Con-way, as it is to hundreds of other businesses that provide pensions for their employees, and to our economy as a whole. Forcing companies to currently fund shortfalls for pension obligations that are not payable for decades, and which may never materialize, comes directly out of our cash reserves and inhibits our ability to invest in business growth, which creates jobs. This legislation would provide necessary flexibility that would enable important capital investments for growth without putting pension plans at risk. It also would give the financial markets and interest rates a chance to stabilize further, both of which greatly affect pension funding levels."
Mike Tanchuk, CEO, Ormet Corporation, stated, "Ormet has provided defined benefit pensions to its employees since 1959, and they were not terminated during its 2004-05 bankruptcy filing, unlike many corporations that use a bankruptcy to jettison their pension liabilities. However, the economic downturn raised pension contributions to an unaffordable level for Ormet and many other manufacturing companies. Funding reform is a "must-do" for Ormet as the global economy recovers...to allow for the continued funding of the pension plan benefits for over six thousand families."
Andrea Ledford, Senior Vice President of Human Resources, NCR Corporation: "Passing reasonable pension funding relief will have an immediate positive effect on American workers and businesses. By acting promptly on pension relief, Congress will encourage businesses to put more of their financial resources into growth opportunities that will help protect jobs. We believe that the pension provisions in the Senate's American Workers, State, and Business Relief Act of 2010 (AWSBRA) are a positive step. We appreciate the work Senators Isakson and Cardin did to develop a consensus on the urgent need for funding relief. We urge the House to move quickly to pass this legislation. We also call on the House to make relief available to all pension plan sponsors, as the Senate did, and not place unnecessary restrictions on relief options. Doing so could limit the legislation's potential to positively impact job retention.
NCR remains committed to meeting our pension obligations but seeks a solution that simultaneously protects pension plan participants and supports business growth in what remains a challenging economic environment."
A.J. Cederoth, CFO, Navistar International Corporation, stated, "Navistar International Corporation, through its subsidiaries and affiliates, produces commercial and military trucks, diesel engines, school and commercial buses, RV's, and chassis for motor homes and step vans. We employ approximately 10,000 people in the United States. We have sponsored defined benefit pension plans for over 100 years and are committed to meeting our pension obligations. We believe that temporary pension funding relief would reduce financial stress on plan sponsors, allowing companies to invest in new equipment and research and development. This would create and sustain jobs and help rebuild the economy.
i Statement of Mark Warshawsky, Director of Retirement Research, Watson Wyatt Worldwide. Testimony before the House Committee on Ways and Means on Defined Benefit Pension Plan Funding Levels and Investment Advice Rules, October 1, 2009.
ii Aon Consulting, "Ready 2012 Pulse Survey," May 2009.
iii Soto, Mauricio. "The Effects of Pension Funding Rules on the Behavior of Firms." Boston College, Graduate of Arts and Sciences, Department of Economics. May 2008.
iv Rauh, Joshua. "Investment and Financing Constraints: Evidence from the Funding of Corporate Pensions Plans." Journal of Finance. 61(1): 33-71, 2006.
v Girl Scouts of the USA. Statement for Record. Committee on Ways and Means Hearing on Defined Benefit Pension Plan Funding Levels and Investment Advice Rules. October 1, 2009.
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Councilâ€™s members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.
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