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 researchdraws 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.
On a related issue, the report denies the validity of an argument that an employer's cash contribution to a pension plan will spark stepped-up capital investment that will create new jobs that will offset those caused by requiring the contribution in the first place.
"The argument against defined benefit plan funding relief relies on economic theory that indicates that capital will move freely from one market to another following the influx of capital investment. However, for this to occur with dollar-for-dollar symmetry, the domestic capital markets must operate perfectly and remain closed to foreign investment," the report reads.
The report also points out that Ireland and Canada have temporarily relieved DB sponsors of normal funding requirements during the period of economic turmoil.
Finally, ABC used the occasion of the research report's release to call for speedy passage of recently proposed pension funding relief.
"Broadly available, temporary funding relief legislation - like the Preserve Benefits and Jobs Act, introduced this week by Representatives Earl Pomeroy (D-North Dakota) and Pat Tiberi (R-Ohio) (see House Members Introduce Pension Funding Relief Measure ) - will allow employers to mitigate the losses brought about by this deep recession," Klein said. "We urge Congress and the Obama Administration to support this critical legislation and move swiftly toward its enactment."
The research is available here .