Corporate defined benefit plan sponsors seeking long-term pension funding relief could reap the benefits of federal government leaders' search for more revenue in tense fiscal-cliff negotiations.
The pitch to extend or even make permanent the pension funding stabilization measures passed in the federal highway law, known as MAP-21, is part of an ambitious six-point proposal delivered to federal legislators and regulators Nov. 29 by the American Benefits Council, a Washington-based group representing Fortune 500 employers.
What could help the funding cause: Making the funding stabilization measures permanent could bring in as much as $70 billion in additional tax revenue at a time when Washington is looking for more. The $70 billion figure is based on several estimates by trade groups from the first round of funding relief.
Lynn Dudley, American Benefits Council senior vice president, policy, said in an interview that many of her group's members would appreciate more support for the defined benefit pension system, but they are particularly concerned about the size of their pension funding liabilities in a low-interest-rate environment that will continue at least until 2015, according to the Federal Reserve Board.
“I'm not sure that Republicans and Democrats understand the pressure on plan sponsors,” said one ABC member, a lobbyist for a company with a $6 billion defined benefit plan facing a ballooning contribution next year. “What is our incentive to stay in the game?”
The pension funding rules in the highway law enacted July 6 allow DB plans to temporarily use a rate within 10% of the 25-year average corporate bond rate for calculating their pension funding obligations, which in turn would reduce tax-exempt contributions and boost federal tax revenues by an estimated $9 billion over 10 years. The interest-rate relief diminishes annually until effectively ending in 2016. MAP-21 also raised another $9 billion in increased premiums for the PBGC.