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NEWS RELEASE
May 29, 2008
Council testifies before IRS: asset smoothing critical for defined benefit plan sponsorsWASHINGTON, D.C. — At an Internal Revenue Service hearing today on proposed regulations regarding pension funding assets and liabilities, the American Benefits Council urged the agency to reconsider its rule with respect to asset smoothing."Asset smoothing" provides defined benefit retirement plan sponsors with greater predictability in the value of its pension assets and funding obligations. If an employer’s funding obligations were subject to the constant fluctuations of the market, funding obligations would be so unpredictable that business planning would be exceedingly difficult. Kent Mason, a partner with Davis & Harman, LLP, testified on behalf of the Council and emphasized the critical importance of retaining some degree of smoothing of asset values to protect against unmanageable and unnecessary volatility and unpredictability in required pension contributions. As the Council’s March 27, 2008, comment letter to IRS illustrated, a review of the history of the pension reform legislation indicates very clearly that Congress intended Treasury to exercise its regulatory authority to permit asset "averaging." Congress intended that the statutory reference to "averaging" be interpreted to mean "smoothing" and Congress also intended the current-law smoothing rules (as reflected in Revenue Procedure 2000-40) to continue to apply, subject to the reduction in the smoothing period and the contraction of the corridor around fair market value. The Council’s testimony also addressed a number of other employer concerns with the proposed regulations: Unpredictable contingent events: the regulations should be clarified to provide that shutdown benefits and other unpredictable contingent event benefits are not taken into account for purposes of determining the funding target until the shutdown or other triggering event occurs. Yield curve election: employers should be permitted to elect to use the full yield curve as of a specific date so as to facilitate liability-matched investments. The election to use the full yield curve applies for purposes of the deduction and benefit restriction rules, in addition to the funding rules, and the right to elect the full yield curve without IRS consent should be extended through the end of the 2010 plan year. Disability benefits: the IRS should clarify that the age and service eligibility requirements for a disability benefit are not treated as satisfied with respect to a participant until the projected date of disability. To arrange an interview with a Council staff member, please contact Jason Hammersla, Council director, communications, at jhammersla@abcstaff.org or by phone at (202) 289-6700.
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 Council'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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