Some employers would have to make additional contributions to their defined benefit plans to qualify for funding relief under a provision in a huge Senate tax and jobs bill.
Lobbyists say the restrictions in the bill would make the relief — through longer amortization periods for investment losses — useless to employers, and they are working to water them down. The bill, the American Workers, State and Business Relief Act of 2010, is sponsored by Senate Finance Committee Chairman Max Baucus, D-Mont.
Among its provisions:
• Companies would have to make additional pension contributions equal to the aggregate amount of employee compensation above $1 million per year;
• Those that paid out extraordinary dividends to shareholders would have to make equivalent contributions to their pension funds; and
• Employers that redeemed in excess of 10% of the market capitalization of their stock would have to put into their pension funds an amount equal to the value of the stock exceeding the 10%.
The idea is to penalize employers rich enough to reward employees or shareholders with high payouts.
The carrot: Plan sponsors would be able to stretch out amortization periods for investment losses for two of the years between 2008 and 2011, either over a period of up to 15 years or over a nine-year period, at the employer's option. Current law requires plans to amortize their investment losses over seven years.
But the tradeoffs required for using long amortization periods are giving employer groups fits.
“You need to make the funding relief usable,” said Judy Schub, managing director of the Committee on the Investment of Employee Benefit Assets, Bethesda, Md. “Giving people relief they can't use is not good retirement policy.”
Under a compromise being promoted by employer lobbyists, plan sponsors that opt to use one of the extended amortization periods would only have to abide by the tradeoffs for a two-year period, pension industry lobbyists said. (So, for example, if an employer uses the 15-year amortization of losses, the company has to abide by the compensation provision for only the first two of the 15 years.)
Pension industry lobbyists have been urging Mr. Baucus to amend the tradeoff provisions in his bill. If he refuses, Sen. Johnny Isakson, R-Ga., is expected to introduce an amendment on the Senate floor to ease the tradeoffs.
“Chairman Baucus and Sen. Isakson are working together and with industry to address industry concerns and devise rules that make the pension funding relief more accessible without adversely affecting the pension security system,” a Senate Finance Committee aide said.
Employer lobbyists said the Senate is expected to address the tradeoffs issue — and vote on the bill — soon, possibly as early as this week.
“This amendment goes a long way in addressing the business community's concerns,” said Kathryn Ricard, vice president of retirement security for the ERISA Industry Committee, Washington.
The Pension Rights Center, an advocacy group for workers, is opposing the industry's efforts to ease the amortization tradeoffs, said Karen Friedman, PRC executive vice president and policy director.
At least according to Ms. Friedman, plan sponsors that have sufficient cash to pay compensation packages in excess of $1 million a year to their executives — and have the funds for other similar discretionary expenditures — don't need pension funding relief.
“The business arguments are pretty specious,” Ms. Friedman said. “They're talking out of both sides of their mouths.”