Pension plan officials and lobbyists are battling the Pension Benefit Guaranty Corp. over the need for legislation on additional plan funding relief.
Officials of the American Benefits Council and the ERISA Industry Committee, both in Washington, have insisted since late last year that significant additional relief is needed beyond what was included in the Worker, Retiree and Employer Recovery Act of 2008. They argue that recession-ravaged companies need the added help to save defined benefit plans and jobs — and even to help get the nation's economy back on track.
“The fact of the matter is this is a jobs issue,” Lynn Dudley, ABC senior vice president, policy, said in an interview. “It is a no-brainer.”
“We're fighting to inject a sense of urgency into this with members of Congress,” said Judy Schub, managing director of the Committee on Investment of Employee Benefit Assets, Bethesda, Md. “Anything that implies that this isn't urgent is very troubling.”
“PBGC has questioned whether or not the case has been made as to whether additional relief is necessary,” said Kyle Brown, retirement counsel at Watson Wyatt Worldwide, Arlington, Va. “There are plenty of us who believe the case has been made.”
In a series of meetings with Capitol Hill committee aides — and through a widely circulated talking-points paper — executives at the PBGC claim pension plan officials and lobbyists haven't made a credible case for additional relief.
“All we have is a handful of carefully selected anecdotes (about the impact that funding obligations might have on some companies), which does not provide a sound basis for making policy decisions affecting nearly 30,000 pension plans,” C. David Gustafson, PBGC chief policy actuary, said in an interview.
Earlier this year, the benefits council was publicizing on Capitol Hill a study by Watson Wyatt that showed required pension contributions for U.S. employers would almost triple in 2009 to $108.7 billion, from $38 billion last year.
The PBGC responded with an agency-generated study that projected the funding relief provided by the Worker, Retiree and Employer Recovery Act — enacted last December — would result in a total of $84 billion in minimum pension plan contributions this year, down from an annual average of $88 billion from 2002 through 2006. The act allowed pension plans to smooth the value of pension assets over 24 months.
The Watson Wyatt study, issued in January included a projection that minimum pension plan contributions for 2009 could fall to $90.8 billion, with the relief provided by the WRERA and some additional funding relief that since has been provided by the IRS, said Watson Wyatt's Mr. Brown.
“It appears as if the WRERA relief has done the job — it has reduced expected contributions for 2009 back to what they were prior to the financial turmoil of 2008,” according to a PBGC supplement to the talking-points paper for a March 11 meeting with staffers of the Senate Health, Education, Labor and Pensions Committee.
The PBGC paper also argues that many plans have credit balances available to “offset some, or all, of the 2009 funding requirement.” Also, executives at struggling DB plans can apply to the Internal Revenue Service for a hardship waiver of funding requirements under existing law, allowing them to postpone their funding obligations and make up the shortfall over the subsequent five years.
Pension industry groups contend that Mr. Gustafson is focused on keeping plan funding as high as possible to reduce the PBGC's potential liability exposure if plans fail.
“We can't get wrapped around the axle of what one actuary at the PBGC thinks about credit balances or any other issue,” said ABC's Ms. Dudley. “We have to face the fact if we don't help companies keep their doors open, the PBGC has much worse problems, because PBGC only takes over plans when companies fail.”
“The PBGC is basically protecting itself, circling the wagons around the PBGC, and, in our view, at the cost of the system,” added Mark Ugoretz, president of the ERISA Industry Committee. “The fact is that this is a recession of historic proportions, and there are a significant number of companies that need relief that the WRERA bill didn't provide. They're not looking for a bailout; they're merely looking to lengthen the amount of time to pay those liabilities.”
Mr. Ugoretz also dismissed the PBGC's suggestion that plans don't need additional relief because they can apply for a funding waiver from the IRS.
“They (plan sponsors) would virtually have to declare bankruptcy to get a funding waiver,” Mr. Ugoretz said. “It's nonsense.”
Responded Mr. Gustafson: “The waiver provisions have been in the law for 35 years, and they have generally worked OK. They provide temporary relief when there is temporary hardship.”