December 8, 2008

Action Requested: Please continue to contact lawmakers to urge their support for critical pension funding legislation this year. In particular, it is vital that you communicate this message to the House and Senate leadership, the tax-writing committees (the House of Representatives Ways and Means Committee and the Senate Finance Committee) and key agencies of the Bush Administration – the U.S. Department of Labor and the U.S. Department of the Treasury and in particular the White House.

Background: As you know, the current economic turmoil and market instability are creating enormous volatility in defined benefit pension plan asset values. Member companies report that in accordance with the aggressive funding rules in the Pension Protection Act of 2006 (PPA), dramatically undervalued assets will force them 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. The Council has been in close contact with members of the U.S. Senate and House of Representatives and the Bush Administration to relay company concerns regarding these funding obligations and the negative impact they have on their ability to recover economically.

Congress is returning to Capitol Hill for a brief legislative session this week. The Council is pushing for the inclusion of defined benefit pension plan funding relief with any broader measures such as automotive industry relief, unemployment or economic stimulus legislation, or as freestanding legislation since prospects for action on these broader bills is uncertain. Before the Thanksgiving recess, the chairmen and ranking members of the tax and labor committees determined that they could lend their support to a narrow package of pension proposals that:

• 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.
• Transition to the new funding rules. Congress should permit plans below the target funding threshold (currently 92%, 94% in 2009) to be eligible for transition relief and as a result any shortfall would be based on the plan reaching the threshold funding target – not 100%.
• Look-back for Benefit Restrictions. For purposes of determining whether the benefit restriction rule (if a plan falls below 60% the plan must cease benefit accruals) applies for 2009 and 2010, the plan's funded status should be based on its funded status as of January 1, 2008.
• Look-back for Multiemployer Plans. For 2009 and 2010, changes in funded status should not be taken into account in determining the funding target zone.

These proposals are drawn from a larger set of proposals advocated by the Council and 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.

The Bush Administration has informally noted several concerns regarding the proposal, including skepticism as to whether there is really a problem facing employers. During the recess, policymakers from Capitol Hill have sought resolution to these concerns. Several Council members and the Council's outside counsel met with Administration officials to discuss the funding challenges. The Administration representatives focused on two main points in the meeting: whether there is in fact a problem that warrants legislation and whether action is necessary now. The Administration has consistently argued that no action is necessary because companies will not generally have to make significantly increased contributions until 2010, other than to avoid lump sum and benefit restrictions and otherwise due quarterly contributions. The Council responded to these assertions in a December 4 letter to Congress.

Given the continued opposition by the Administration to any relief other than clarification of smoothing, it will be difficult for Congress to pass legislation. To do so would likely require obtaining unanimous consent of both the House and Senate. Congressional advocates for relief have indicated that if legislation is not possible before the end of the session, it may be possible to introduce legislation to indicate to the pension community that Congress is committed to returning to this issue. The Council has also met twice with President-elect Obama’s transition team to familiarize them with the concerns being expressed by Council members.

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

• A December 8 group letter to Congress urging immediate action on pension funding
• Council Talking Points on Defined Benefit Plan Funding Relief
• 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.

PLEASE HELP: Your immediate calls to the key groups are urgently needed. We ask that you specifically explain the connection between the funding obligation and the decisions your company is facing and why this is a current issue for your company and the economy. Please urge lawmakers to take action now.

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. 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

The White House
(in particular, the office of White House Chief of Staff Josh Bolten: 202-456-0192)

U.S. Department of Labor

U.S. Department of the Treasury