Funding Relief, PBGC Improvements Called for in HELP Committee Hearing

October 29, 2009 (PLANSPONSOR.com) - In testimony Thursday before the U.S. Senate Committee on Health, Education, Labor and Pensions (HELP), witnesses urged legislators to loosen up funding rules for defined benefit pension plans.

Richard Jones, Chief Retirement Actuary at Hewitt Associates, said the perils that DB plans are facing today are not only due to the struggling economy, but are exacerbated by regulatory changes that limit the flexibility in how and when companies fund their plans. "The imminent need is for temporary relief to help employers solve the funding problems exacerbated by the recession," he said.

According to Jones, Hewitt suggests:

• Widening - either temporarily or permanently - the asset "smoothing" corridor for pension funding calculations from 90% to 110% of market value, to 80% to 120% of market value (Jones noted that 80% to 120% was allowed under pre-Pension Protection Act rules); and
• Allowing amortization of 2008 asset losses over a period of time significantly longer than seven years, recognizing the unique nature of those events in financial history.

Speaking solely regarding multi-employer plans, Randy G. DeFrehn, Executive Director of the National Coordinating Committee for Multiemployer Plans, presented his group's survey findings on the effects of the recession on the funding status of multi-employer plans. He noted that to avoid falling into certain "zones" defined by the PPA which could result in being forced to enter into a "funding improvement plan" or "rehabilitation plan," many multi-employer DB plans changed asset allocations and plan benefits in an aggressive model. Because of that, and because of the market meltdown in the past year, plans now find themselves in the "zones" they were trying to avoid.

DeFrehn said most of his group's proposals for funding relief were included in the recently introduced Preserve Benefits and Jobs Act (see House Members Introduce Pension Funding Relief Measure ); however, additional proposals included expansion of the Pension Benefit Guaranty Corporation's (PBGC) ability to facilitate mergers or "alliances" of weaker plans into stronger plans, and expanding current Employee Retirement Income Security Act (ERISA) provisions to allow multi-employer plans to segregate liabilities associated with employers that have ceased plan participation and left without paying their full withdrawal liability.

Karen Friedman, Executive Vice President and Policy Director of the Pension Rights Center, said the Center supports funding relief, but only for companies that sponsor active defined benefit plans under which employees continue to accrue benefits. The Center feels companies with frozen plans should receive no additional funding relief.

"Companies that stood by their defined benefit programs while others abandoned or froze them deserve support from Congress," she stated.

However, to get funding relief, Friedman suggests plans must make a commitment that employees will continue to earn new benefits under the plan at least until the end of the period in which relief is granted. In addition, Friedman said, the Center recommends that as part of funding relief, companies should be prohibited both from making contributions into deferred compensation arrangements, such as rabbi trusts, and from paying out benefits to executives from these plans during the relief period.