Indeed, over the next three years, the local councils will have to contribute $145 million toward the deficit in the frozen pension fund, which is $36 million more than a similarly situated corporate plan covered by PPA would have.
Historically low interest rates for calculating the discount rate to value liabilities didn't help either, and since the Girl Scouts were not covered by PPA because of the 2010 exemption, they could not take advantage of relief passed last year.
By 2010, local Girl Scout councils' pension contributions that previouslyhad represented 3% of localcouncils' payroll had tripled. This year, they are expected to increase to 15% of payroll.
The Girl Scouts of Middle Tennessee filed suit in June 2012 in U.S. District Court in Nashvilleagainst the national office over the contribution hike, arguing a council consolidation that shrunk the number of local councils, completed in 2010, increased pension costs dramatically by adding new participants and early retirement incentives.
“We want the court to say that the additional participants and early retirements are (GSUSA's) responsibility,” said James Bristol, a lawyer with the Nashville law firm of Waller Lansden Dortch & Davis LLP, who represents the Girl Scouts of Middle Tennessee. Officials at GSUSA officials filed a motion to dismiss the case and declined to comment on pending litigation.
Before that $42 million payment comes due in 2014, Girl Scouts officials are asking Congress to put theim back under PPA rules.
“So far, many offices in Congress have been very receptive to our concerns,” said Sally Schaefer, director of public policy in the Girls Scouts' Washington office. “In over 30 meetings with Hill offices on both sides of the aisle, no one has objected to our request.”
Girls Scouts CEO Anna Maria Chavez also has been reaching out to legislators, arguing that restoring PPA rules is better than the staff layoffs and program cuts that some local councils are now considering. Still, as Capitol Hill deals with pressing budget problems of its own, “it is unclear if there will be any opportunity to address pension issues this year,” said Ms. Schaefer. “With our local councils as partners, we're pursuing all options.”
Without commenting specifically on the Girl Scouts' case, Allison Preiss, spokeswoman for Sen. Tom Harkin, D-Iowa, said the chairman of the Senate Health Education Labor and Pensions Committee is sympathetic to the difficulties that unpredictable funding levels cause employers, particularly in the non-profit sector. “Sen. Harkin is committed to making it easier for every employer to offer a pension plan.”
Without that change, “we can't make ground,” on the unfunded liability, said Ms. Corsello. “There really isn't much you can do. There is no way you are going to invest your way out of it.”
That is particularly true since 2011, when the Girl Scouts embraced a liability-driven investment approach for its frozen plan. “It was to better match the duration of assets to liabilities, and to better reduce the volatility,” said Ms. Corsello, who works with investment consultant Rocaton Investment Advisors in Norwalk, Conn., and a roster of external managers.
The plan now has 49% of assets in long-duration bonds, with another 10% in other fixed-income strategies including high yield and emerging markets. The rest of the portfolio includes 22% in equities plus investments in hedge funds, private equity and real estate.
While the Girl Scouts are carrying the flag to rectify their miscalculation in 2010, undoing the exemption could also provide a funding option for similar charities with affiliates, such as universities and non-profit hospitals. n