No Pension Funding Relief for Now

Companies that seek relief from pension plan funding increases will most likely have to wait until next year to find out if Congress will roll back the Pension Protection Act signed by President Bush in 2006, which was geared to strengthen defined benefit (DB) plans and went into effect this year. Spurred by big airline and steel company pension defaults, the Act tightened DB funding rules and required companies to fully fund their obligations within seven years. The law covers both active and frozen plans.

A bill that would ease the more stringent pension funding rules recently died in the Senate; no one knows whether it will be resurrected in December or whether it will be on the back burner until Congress reconvenes from the holiday break in January. The bill allows plans that fall below funding levels required by the 2006 act more time to meet their funding goals; their "at-risk" status for next year would be based on 2008 funding levels.

More than 300 companies and business groups sent a letter to the House Committee on Ways and Means asking for a reprieve, which they argued, is urgent because of the economic crisis. "The drop in the value of pension plan assets coupled with the current credit crunch has placed plan sponsors in an untenable position," they wrote. "At a time when companies need cash to keep their businesses afloat, they are also required to make unexpectedly large contributions to their plans in order to meet funding requirements. Consequently, many companies will have to consider whether to freeze or terminate their plans or reduce retirement benefit accruals in order to survive."

The New York Times reported that many of the companies pleading for relief from the more stringent funding requirements have obligations so big that they can dominate the entire company's financial performance. According to a Times source, companies including NCR Corporation, IBM, Rockwell Collins, the ITT Corporation, Northrop Grumman, and Pactiv Corporation have pension obligations more than five times the size of the single largest liability on their balance sheets.

The American Benefits Council, which is among the groups at the forefront of the effort to obtain pension funding relief, set out a 10-point plan that provides recommendations that would help prevent unexpected and unintended pension funding mandates not anticipated when the 2006 funding act passed into law that would "cost jobs, impede economic recovery and trigger massive benefit freezes."