A bill currently making its way through the California Assembly would bar a corporation from paying out dividends or buying back shares if the company failed to make a required payment to its defined-benefit pension plan.
AB 2122, sponsored by Johan Klehs, a Democrat, would also make a board member who pocketed such a distribution liable to the corporation for the amount received plus interest, “regardless of whether he or she had knowledge of its impropriety.” Under existing law, shareholders must reimburse the corporation only if they know a dividend or share buyback would render the company “unable to meet liabilities as they mature.”
The bill, which was referred earlier this month to the Assembly’s Banking and Finance and Judiciary committees, specifically cites unpaid defined-benefit bills as such mature liabilities.
An analysis accompanying the bill argues for its necessity in light of the struggle by the two houses of the U.S. Congress to hammer out a pension-reform bill before the July 4 recess. The negotiations “have been mired in special interest exemptions, loopholes, and a smorgasbord of special-interest pork,” according to the analysis. “The current attempts to regulate pensions could lower corporate contributions to pensions by as much as $140 [billion] to $160 billion over the next three years.”
Assemblyman Klehs, who at press time couldn’t be reached for comment, has suggested that his bill is needed to keep corporations from enriching shareholders while failing to make good on their pension promises. According to the analysis accompanying the bill, Klehs “further contends that corporate executives will continue to collect their golden parachutes while their retirees are forced to get low-wage jobs to try to fill the hole their unpaid pension left in their bank account.”