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
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
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
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 benefitÂ 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 distriÂbutions, 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.