ABC Contends Pension Funding Rules Cost U.S. Jobs

October 30, 2009 (PLANSPONSOR.com) - The accelerated pension funding mandates in the Pension Protection Act are costing the U.S. economy much-needed jobs, a new report contends.

The report, "Assessing the Impact of Increases in Defined Benefit Plan Funding Obligations on Employment During an Economic Recession," argues that pension funding requirements can drain an employer's assets that otherwise would be available for labor and capital expenditure increases. The document was prepared by Optimal Benefit Strategies on behalf of the American Benefits Council (ABC).

An ABC news release said the research draws on academic research, congressional testimony, and economic analysis.

"The (report), clearly confirms what employers have been saying for months," said Council President James A. Klein, in the news release. "The current defined benefit funding crisis is more than a pension issue. It is a fundamental jobs issue and a critical economic recovery issue…. The accelerated funding requirements included in the Pension Protection Act, combined with the market-driven declines in pension asset values and historically low interest rates, have created unprecedented and unforeseen challenges for employers that voluntarily provide generous retirement benefits."

Citing earlier research and surveys, the report points out that:

• 68% of defined benefit plan sponsors indicated that unexpected cash needs associated with their defined benefit plans would cause them to make other cuts, including cuts in the areas of hiring and workforce training.
• For every dollar of mandatory funding contributions, between 60 to 70 cents is diverted from capital expenditures such as infrastructure and human resources.
• In years of contraction, defined benefit plan funding requirements are responsible for 4% of the reduction in employment.

"Requiring employers to increase their funding to defined benefit plans during a recession leads to layoffs, bankruptcies, and the freezing of defined benefit plans, suggesting that the pension funding obligations could fundamentally alter the distribution of jobs in the economy," the report states.