Efforts to hammer out compromise legislation that could give defined benefit plan sponsors much of the additional plan funding relief they have been seeking for more than a year are moving ahead, spurred by fears that failure to do so would generate more job losses.
Pension industry representatives long have been arguing that without additional relief from the onerous funding requirements of the Pension Protection Act of 2006, employers will have to plow more money into plans, reducing capital needed to retain existing jobs or to create new ones.
But the funding relief effort has been stymied on Capitol Hill, largely because employers and advocates of plan participants have been unable to agree on what sort of tradeoffs employers should be required to accept in exchange for the lifeline.
Plan-participant groups, led by the AFL-CIO and the Pension Rights Center, have sought to make relief available only to companies with active plans that promised not to freeze the plans for a set period of time — a move some employer groups viewed as a step toward mandatory pension coverage (Pensions & Investments, Feb. 23, 2009).
But the AFL-CIO now is ready to cut a deal that would provide extra relief for companies that maintain active plans while providing some funding breaks for all employers.
“We are supporting relief for all pension plans, but we would like to reward the good actors — those who have maintained active plans — with something better,” said Lauren Rothfarb, an AFL-CIO lobbyist.
To recharge the effort, Rep. Earl Pomeroy, D-N.D. is considering modifications to a funding-relief bill he introduced in October with Rep. Pat Tiberi, R-Ohio.
A spokeswoman for Rep. Pomeroy said the lawmaker, working with colleagues on the House Ways and Means Committee, is trying to come up with a compromise that would provide some pension funding relief to all DB plan sponsors, and then an additional level of relief to DB plan sponsors that have “ongoing active plans.”
Mr. Pomeroy's spokeswoman said the lawmaker was also considering whether to tie funding relief to a cap on non-qualified deferred compensation to company executives.
The original bill drew applause from the corporate-backed American Benefits Council, but was sharply criticized by the Pension Rights Center, an advocacy group representing workers.
Under Mr. Pomeroy's original bill, single-employer defined benefit plans would be able to amortize 2008 investment losses either over a period of up to 15 years or a nine-year period, at the employer's option. Current law requires plans amortize their investment losses over seven years.
Using the nine-year approach, plan sponsors would only have to make interest payments on their 2008 investment losses during the first two years. Under the 15-year plan, the sponsor would amortize their 2008 investment losses over the entire 15 years.
Plans that choose amortization relief would have to agree to either continuing benefit accruals to the plan, making a 3% contribution to a defined contribution plan for employees frozen out of the DB plan, or freezing non-qualified deferred compensation of the company's key employees.
In addition, the Pomeroy-Tiberi legislation, called the Preserve Benefits and Jobs Act, would let a plan expand the smoothing of average asset values to 20% of fair-market value for 2009 and 2010, from the 10% of fair-market value currently.