Risk & Compliance

Pension Sponsors Seek to Delay New Rules

Impact of market collapse on defined benefit plans has companies banding together so they won't have to meet requirements of the Pension Protection...
Stephen Taub and Roy HarrisOctober 29, 2008

With the global stock market collapse sending assets of traditional pensions into a tailspin, a coalition of large companies that still offer defined-benefit plans is seeking a suspension or delay of new rules that would further drain them of much-needed cash.

Pensions currently are about 85 percent funded, according to Bloomberg News, which cites the Mercer pension consulting unit of Marsh & McLennan Cos. Trouble is, the Pension Protection Act of 2006, passed after funding dropped following the technology and internet collapse in 2001, requires companies to cover 94 percent of retirement-plan liabilities to be considered fully funded in 2009.

But supporters of a delay in the delay in the law’s timetable say that a large number of companies are likely to fall short of that funding level.

“There is certainly serious concern that the effects of doing nothing [about the law] will have a huge negative impact on companies, and lead to significant extra expenses at a time when credit is so tight,” Judy Schub, managing director of the Committee on Investment of Employee Benefit Assets (CIEBA), told CFO.com. CIEBA, a pension-plan trade group that is part of the Association for Financial Professionals, is supporting an effort that Schub says is being led by the American Benefits Council, a national trade association for companies concerned about federal legislation and regulations. “We are all working to encourage Congress to act quickly,” she said.

The ABC issued a 10-point plan last week detailing addressing threats to employer-sponsored plans.

A year ago, the requirement to cover 94 percent of plan liabilities didn’t seem like much of a problem, given that plans covered 104 percent of obligations and posted a $60 billion surplus at the end of 2007, according to Bloomberg, citing Mercer numbers.

However, North Dakota Representative Earl Pomeroy, a Democratic member of the House Ways and Means Committee, told Bloomberg that about 59 percent of the 100 largest U.S. pension plans will fall short of the required 2009 funding level, even if the stock market cuts its losses to a mere 13 percent decline. The law “was unnecessarily conservative in its funding requirements and unnecessarily punitive in cases where companies make an unwise decision relative to plan funding,” Pomeroy said. He is expected to begin holding hearings on pensions and economic-recovery plans shortly.

Under the pension law, companies must cut benefits if assets fall below 80 percent of liabilities and eliminate lump-sum payments below 60 percent. In addition, at that level companies must also freeze their plans and prevent participation by new hires, the wire service noted.

Companies must begin meeting the requirements of the new law on Dec. 31, when they must calculate their funding ratio and develop budgets for contributions beginning in the second half of 2009, Bloomberg noted.

Among the diverse companies reporting that they expect pension contributions to increase significantly next year are Ryder System Inc. and Lockheed Corp., according to Bloomberg. And other companies, including Dow Chemical, are keeping a close eye on the situation.