January 13, 2009

• Provide information about the financial impact of the funding obligations considering the legislation passed in December
• Make calls urging Congress to take action now to make pension contributions more manageable and to prevent benefit restrictions

Background: As you know, the current economic turmoil and market instability are creating enormous volatility in defined benefit pension plan asset values. Passage of the Worker, Retiree, and Employer Recovery Act (H.R. 7327) last December was an enormously important step towards greater predictability of funding obligations on a long-term basis because it clarified the ability of plan sponsors to spread gains and losses over a 24-month period when valuing pension assets (this process is also known as ”smoothing”). It also modified the so-called "transition cliff" so that more companies could take advantage of the transition to the 100% funding target.

However, member companies continue to report that they will be forced to divert very significant resources toward their funding obligations. These are resources that could otherwise be used for job preservation and creation, infrastructure and other capital investment that would contribute to economic recovery. Companies also have expressed concern that unless additional legislation making the contributions more manageable in the short term is passed, it will severely hinder their ability to maintain their pension plan and, in some cases, to afford the matching contribution to their 401(k) plan. The Council has been in close contact with members of the U.S. Senate and House of Representatives and Obama Administration transition officials to relay company concerns regarding these funding obligations and the negative impact they have on companies' ability to recover economically.

The 111th Congress is already at work on the economic stimulus bill and that legislation is expected to be on a fast track to passage over the next few weeks. The Council is pushing for the inclusion of additional defined benefit pension plan funding relief as part of the economic stimulus legislation, as part of other measures being considered by Congress or as freestanding legislation since prospects for inclusion in the stimulus bill are questionable.

The Council has provided a set of additional proposals that build on our prior set of recommendations and is working with fellow members of the business community and congressional members to advance those with the greatest support and potential help to companies. The proposals underscore support for the Council’s position that the effect of the recent financial turmoil should be taken out of the calculation for purposes of the 2009 and 2010 funding obligations and that companies should be able to "look back" to a point before the market drop and credit crisis in determining their contributions. One proposal in particular has captured some interest amongst lawmakers, a proposal that would allow companies to pay interest on the underfunded obligations resulting from the 2008 losses in 2009 and 2010 (along with any costs necessary to maintain accruals for those years – so called “normal costs”) and then to return to a seven year amortization of the underfunded amount in 2011. Importantly, the proposals include changes to some provisions that have negatively impacted plan sponsors as a result of the way the provisions have been or could be interpreted by the Treasury and Internal Revenue Service. The Council is also reaching out to the Treasury and IRS to determine whether these issues can be addressed through the agencies as well.

While several members of Congress have already recognized the need and expressed support for additional legislation, others have expressed reluctance to quickly embrace additional legislation without having a better understanding of how the legislation passed in December will affect funding obligations and the financial condition of companies. In addition, some members have expressed concern over the potential for exacerbating pension underfunding in the future. This concern is shared by a number of officials at Treasury, the IRS, the Department of Labor and the PBGC and was a problem in passing the legislation last December.

PLEASE HELP: Your company’s signature on the attached letter is critically needed if we are going to build a sufficient level of interest in doing more legislation. In addition, your immediate calls to the key members of Congress are urgently needed. We ask that you specifically explain the connection between the funding obligation and the business decisions your company is facing and why this is still a current issue for your company and the economy. Resources: PLEASE HELP:

Given the time sensitivity and urgent nature of this issue, phone calls may be more effective than e-mails. Key contacts and resources are provided below. The Capitol switchboard number is (202) 224-3121. To sign on to the joint company letter or for more information or assistance, contact Lynn Dudley, senior vice president, policy, at (202) 289-6700.

Congressional directory and House/Senate leadership

House Ways and Means Committee

Senate Finance Committee

House Education and Labor Committee

Senate Health, Education, Labor and Pensions Committee