March 16, 2009
Urge legislators to enact pension funding legislation
Action Requested: Please contact your congressional representatives, congressional leadership, leaders of the tax and labor committees and/or any other lawmakers with whom your company has a relationship to urge their support for critical pension funding relief legislation.
Background: The continued market downturn is putting extreme pressure on many companies. The impact of the financial turmoil and market downturn in 2008 severely impacted the funded status of defined benefit pension plans across the country. This is forcing many companies to have to set aside resources unexpectedly to meet the increased funding obligations that otherwise could be used for job preservation and creation or capital investment. This is true despite passage of the Worker, Retiree and Employer Relief Act in December 2008 that included two provisions to potentially reduce funding obligations for many plan sponsors.
Despite the relief already provided, funding obligations for 2009 are estimated to be, on average, double those for 2008 and in some cases much higher. Both Watson Wyatt Worldwide and Hewitt Associates have estimated the possible effects on companies and their workforces. As expected, lawmakers have been reluctant to take additional action for several reasons. First, there is uncertainty as to how much the legislation in 2008 helped plan sponsors. Second, there continues to be bipartisan concern about the potential increase in PBGC deficits and the potential to undermine PPA.
In this regard, PBGC representatives have raised several concerns with policymakers on Capitol Hill. Many of their concerns seemed to be responses to solutions proposed by the Council to help address the dramatic increase in funding obligations for 2009. The Council has issued key defined benefit pension funding proposals and urged congressional leaders to enact these measures. The PBGC has indicated that because there is no statutory requirement for a company to fund to avoid the benefit restrictions, Congress should not be concerned with contributions that companies need to make to avoid those restrictions; such contributions are "voluntary" and thus should be disregarded in evaluating the need for funding relief. Only minimum funding contributions should be considered by Congress. The PBGC representatives have also indicated that they believe very few people will be affected by the lump sum restrictions and to the extent that employees have an expectation to receive a lump sum, this should not be considered a driver of funding legislation. Numerous congressional and administration policymakers share PBGC's concerns that using relief to permit lump sums will exacerbate underfunding.
The PBGC representatives have also indicated that while they recognize there is a large increase in the 2009 pension funding shortfall, the current 7-year amortization is sufficient to spread out the funding obligation, since only a small portion of the 2008 investment loss needs to be made up as part of the 2009 funding requirement. In addition, widening the corridor to permit fuller use of 24-month smoothing would result in the failure to adequately recognize losses and result in no limit on the value of "pretend assets." Also, if there are funding problems, PBGC representatives have indicated that funding waivers are available to avoid those problems. The PBGC representatives have argued that only a few companies would be affected by extending the transition rules under PPA to all plans, and those affected plans are plans that the PBGC considers to have been significantly underfunded in 2007. Finally, while PBGC acknowledges that a significant portion of credit balances built up from prior contributions will not be available to meet 2009 obligations, PBGC believes that credit balances should be taken into account in determining any legislative relief because some companies may have some credit balances available to offset increased funding obligations.
PBGC representatives also point out that the ability to elect to use spot rates to determine plan liabilities will reduce 2009 funding obligations. PBGC believes that any concern about the possibility that Treasury will not provide the needed approval to return to the use of the smoothed segment rates can be addressed through Treasury guidance. Importantly, PBGC may not be objecting to a correction of the Treasury regulations, whereby the full yield curve could be elected for any "applicable month", i.e., for September, October, November, December, or January in the case of a calendar year plan. If we can obtain assurance from Treasury that this rule will be corrected, that would be a major step forward with respect to 2009 funding obligations for companies with calendar year plans. The Council previously sent a letter on this issue to Treasury on January 13, 2009.
PBGC representatives have also stated that concerns about the cost of reporting under ERISA section 4010 are "grossly exaggerated".
Despite the pushback from PBGC, there is receptivity within Congress to considering additional funding relief legislation if a sufficient case for the need is made by plan sponsors, but the connection to business decisions currently being made or that will be made by companies is important for lawmakers to understand. In the meantime, the Council is actively talking to the Hill about the issues raised by the PBGC and providing our perspective and views on those issues. But the key to funding relief is communications from companies to the Hill and the Administration regarding how the lack of funding relief will (1) reduce companies' ability to invest in their businesses, (2) cost jobs, and (3) slow down the economic recovery.
PLEASE HELP: We ask you to make immediate calls to the key groups listed below and specifically explain the connection between the funding obligation and the decisions your company is facing. Additional funding relief legislation is unlikely without your efforts. Smoothing clarification and fixing the transition "cliff" are very significant and expressing appreciation for inclusion of those provisions in the 2008 legislation is important. But they do not fully address the challenges caused by the recent financial turmoil for many companies. The Council is available to work with you, your colleagues, and your actuaries to demonstrate the continuing need for relief.
Key contacts and resources are provided below. For more information or assistance, contact Lynn Dudley, senior vice president, policy, or Diann Howland, vice president legislative affairs at (202) 289-6700.
- Employer Shared Responsibility
- Market Reforms & Adult Child/Age-26 Coverage
- Preventive Care & Value-Based Design
- Quality Improvement & Delivery Reform
- Essential Benefits
- Tax & Revenue Issues
- Grandfathered Plans
- Claims and Appeals
- Summary of Benefits & Coverage
- Informational Reporting/W2
- Health Insurance Exchanges
- State Innovation
- Medical Loss Ratio & Mini-Med Plans
- Automatic Enrollment
- Wellness Programs
- Accountable Care Organizations
- 90-Day Waiting Periods
- Automatic Enrollment
- Plan fees
- Taxation of Retirement Plans/Limits
- Funding Reform
- PBGC Deficit & Premiums
- Business Conduct Standards
- FACTA Issues
- FBAR Issues
- Puerto Rico Plans
- Non-Qualified Deferred Compensation
- Code Section 409(A), 457(A), 162(m) issues