Pension Funding Relief Seen as Best Under the Circumstances

June 29, 2010 (PLANSPONSOR.com) – Considering the politically charged anti-bailout  atmosphere in which pension funding relief was negotiated and finally signed into law, plan sponsors generally should be pretty happy with the final product. 

Kathryn Ricard, Senior Vice President, Retirement Security, for the ERISA Industry Committee, said that while the retirement services industry would have preferred not to have the conditions in the final bill tying the longer pension amortization periods to “ excess compensation or extraordinary dividends or stock redemptions,” the connections were at least understandable.  

Ricard said she heard the same cautions from lawmakers from both sides of the aisle – that they could not be seen as implicitly condoning the acts of employers who wanted to funnel their available cash into higher salaries or dividends or other similar payments instead of ploughing the money into their underfunded pensions.  

That’s why the final version of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 requires an increase in alternate required shortfall amortization installments by an installment acceleration amount, during a specified restriction period (beginning after December 31, 2009). “Congress said they were going to look at (other) things that require cash,” Ricard explained.  

The final bill allows a sponsor of a single-employer defined benefit pension plan to elect in any two plan years between 2008-2011 extended amortization periods of nine (interest only for two years and a seven-year amortization) or 15 years instead of the usual seven years. Multi-employer plans are also given extended amortization periods.  

During the three-year period beginning with the election year (where the two +seven years alternative is elected) or the five-year period beginning with the election year (where the 15-year alternative is elected), the required contribution for any year would be increased by the amount of excess compensation – compensation paid to any employee, during the calendar year in which the plan year begins to the extent that it that exceeds $1 million. 

Ricard told PLANSPONSOR the final bill did not have provisions that industry lobbyists considered significantly more onerous, including a requirement for a government agency financial review for employers applying for the pension funding aid, a requirement that plans receiving the aid be required to stay active for a minimum period, and a bar to qualifying for the aid for plans frozen to new members. “That was something we didn’t think was appropriate,” Ricard remembered. “There were a lot of proposals (in earlier bill drafts) we though thought were much worse.”