Running the Fund:The View from the Summit

Hagan noted that Congress meant for the use of smoothing, and this was simply an unintended consequence of sloppy terminology. "I do believe that, if anything gets done in a lame-duck session, the smoothing issue will get fixed, that there will be clarification from Congress that that's what they meant, and that will help in a permanent way," she said.

A related issue is that of the collar or corridor issue surrounding the smoothing provisions. The PPA only offers a two-year and 10% window on each side, Wagner explained, compared with the previous five-year and 20% on each side. This is a relevant issue, Hagan said, because, at a time when you see your assets drop and you are restricted to a narrow window, you will run afoul of the smoothing boundaries, which will lead "to using fair market value, which is like mark-to-market in this economy."

Unfortunately, Hagan said, "I am not quite as sanguine on this because the conversations have not been as universally positive as they have on the smoothing issue." If anything, Hagan and Wagner said, sponsors potentially will get to return to the pre-Pension Protection Act (PPA) 20% on either side window for the same term.

The issue that Hagan said was "tied" with smoothing for predicted passage was that of pushing back some of the phase-in provisions of the transition rules. Under the PPA, employers are required to make sufficient contributions to plans in order to meet a 100% funding target by 2011 and erase funding shortfalls over seven years.

This provision "is almost a gotcha," Wagner said. "If you won't hit your targets, you can't get the phase-in treatment." The 2009 funding status should be 94%, and there is a push to allow that to remain at 92%, panelists said. "I think it's crazy, if you are 91% funded, your target is 100%, but if you're 92% [funded], you're fine," Hagan commented. "I think there will be great pressure to liberalize this," Wagner agreed.

Another rules issue surrounds benefit­ restrictions, which Wagner called Draconian. If a defined benefit plan is less than 80% funded, it cannot be amended to increase benefits unless the benefits are paid for immediately—and if it is 60% funded, it is prohibited from additional benefit accruals for lump-sum distri­butions, or plans must be shut down and not pay benefits.

There are some informal discussions about suspending those rules for 2009 or 2010, Hagan noted, but, since it is an issue of underfunding, perhaps if other issues are fixed, maybe that does not need to be addressed.