WASHINGTON — A coalition of employer groups wants Congress to postpone for a year the effective date of the funding provisions of the Pension Protection Act of 2006.
Coalition representatives say a delay is needed because the Treasury Department and Internal Revenue Service — the main federal agencies charged with implementing the new law’s funding provisions — have yet to propose some important funding regulations. They include:
cwhich yield curve pension plans are supposed to use in calculating interest rates for plan funding liabilities and lump sum distributions;
cappropriate ways to use “asset smoothing” in determining plan funding obligations; and
cwhat assumptions need to be included in deciding whether a plan has fallen into an “at risk” funding category.
Responded Eileen Gilligan, a Treasury Department spokeswoman: “Treasury will be prepared to implement the Pension Protection Act as enacted.” She declined additional comment.
But even if the agencies propose the funding rules immediately, lobbyists and attorneys are concerned that they won’t have sufficient time this year to comment on the final shape of regulations — and that they certainly won’t have as much time as they would prefer to plan for the funding obligations the regulations will require.
Lots of guidance needed
“We need an enormous amount of guidance,” said Kyle Brown, retirement counsel for Watson Wyatt Worldwide, Arlington, Va.
The coalition is led by the American Benefits Council. Other members are the ERISA Industry Committee and the National Association of Manufacturers, all based in Washington.
Minor tweaks in rules governing asset smoothing and the yield curve could lead to major changes in plan liabilities, industry sources contend.
“The lack of guidance regarding the funding rule is a huge problem,” said Scott Macey, senior vice president and director of government affairs, Aon Consulting Inc., Chicago. He made the comment on the coalition’s behalf in testimony last month before the House Health, Employment, Labor and Pensions Subcommittee.
The PPA funding reforms “will change the funding obligations of major employers by hundreds of millions of dollars, and in some cases by billions,” Mr. Macey said.
“In light of the current lack of guidance with respect to the PPA funding rules, it is critical that the effective date of the funding rules be delayed to 2009,” Mr. Macey added. The funding provisions are scheduled to be effective Jan. 1, 2008.
Without sufficient advance guidance, some plan sponsors might freeze their plans, warned Lynn Dudley, ABC vice president, retirement policy.
“I keep looking for that glimmer of hope on why you should keep a defined benefit plan,” Ms. Dudley said in an interview. “But I don’t see the law or guidance encouraging you to do that.”
Not their fault
Pension industry lobbyists said they don’t blame the Treasury Department or the IRS for the lack of rule-making progress.
“The problem is, the amount of guidance is so vast, it’s really testing the IRS’ and Treasury’s resources,” said Watson Wyatt’s Mr. Brown.
According to Mr. Brown, actuarial firms will be sorely tested by the lack of adequate advance notice. That’s because those actuaries will have to modify complex computer programs to address the new obligations.
If the rules don’t come out until the last minute, actuaries will have to scramble to recompute funding calculations, possibly upsetting clients, said Ron Gebhardtsbauer, senior pension fellow for the American Academy of Actuaries, Washington.
In addition, Mr. Gebhardtsbauer said fast action on the regulations is important because some decisions on funding issues have to be made soon. “Employers have to make decisions this year which depend on the new rules,” Mr. Gebhardtsbauer said.
The concerns of the lobbyists were echoed by one plan executive.
“It’s better to get good rules out with adequate comments, rather than bad regulations,” added William F. Quinn, chairman and CEO of American Beacon Advisors, Fort Worth, which manages the pension assets of American Airlines.
Winning the needed legislative relief for a funding postponement could be difficult.
PBGC could suffer
A major spur for the pension act’s passage was bolstering the financial wherewithal of the Pension Benefit Guaranty Corp., Washington, which insures private pension plans. Postponing the funding requirements might result in the PBGC having to take over more plans with worse funding than they would have had if the companies had been required to comply with the new funding requirements starting in 2008.
“The Pension Protection Act’s deadlines for funding changes were already considerably later than those envisioned in the administration’s original reform package,” said Jeffrey Speicher, a PBGC spokesman. “This new suggested delay would kick the can even further down the road.”
Aaron Albright, a spokesman for the House Education and Labor Committee, said the industry’s plea for relief is under congressional consideration.
“We are reviewing the issue since Treasury hasn’t provided all the necessary guidance yet,” Mr. Albright said.
At the same time, coalition representatives are urging the Treasury Department to provide some sort of transitional relief from the pension act’s funding deadlines, said Rosemary Becchi, ERIC vice president, retirement policy.
“The Treasury Department is very sympathetic, and they want to do the right thing, too,” Ms. Becchi said.
