The Senate Health, Education, Labor and Pensions Committee on Thursday approved a bill that would require pension plans to pay off all liabilities over 10 years, said a committee spokesman. The bill also would clarify that cash balance and other hybrid pension plans are legal, the spokesman said.
The latest proposal, the Defined Benefit Security Act, is modeled after the House Education and the Workforce Committee bill. It calls for plans to be fully funded based on assets averaged over no more than three years and liabilities measured against a yield curve that is smoothed over three years, according to the spokesman.
Companies would still be able to use credit balances — excess pension contributions that can be credited toward future contributions, allowing for more flexibility — under the Senate HELP bill. However, a plan funded at less than 80% could not use a credit balance to forgo the entire minimum required contribution for the year. Instead, the company would have to pay either its "normal costs" or 25% of the minimum required contribution, whichever is greater, to "prevent funding holidays and ensure cash is always going into the plan," according to a summary of the approved bill.
A company with a funding level of less than 60% would be considered an "at-risk liability" and would be required to assume all employees would retire at the earliest possible date, taking lump sums and early retirement subsidies, according to the summary. Those plans would be required to freeze new benefit accruals, and the companies would not be able to enhance compensation for top executives until the plan reaches the 60% threshold.
The bill borrows the Senate Finance Committee bill's provision permitting airlines to fund up their shortfalls over more than a decade and asks the Labor and Treasury secretaries and the executive director of the PBGC to give extensions of up to a year to plan sponsors in areas affected by Hurricane Katrina, the summary said.
The two Senate committees' bills must be merged before a bill goes to the Senate floor for a vote, the spokesman said.
