PPA Change Bill Includes Smoothing Provision

June 30, 2008 (PLANSPONSOR.com) - New Congressional legislation in the form of a Pension Protection Act technical corrections bill would effectively clarify lawmakers' intention that corporate pension plans can use 24-month smoothing.

A Workforce Management news report said the Pension Protection Act (PPA) Employee Retirement Income Security Act (ERISA) Amendments of 2008 (H.R. 6382) would overrule a current Internal Revenue Service (IRS) interpretation of the PPA requiring   plans to compute their funding obligations over two years using average asset values, which could generally force plans to make larger contributions.

Smoothing permits the use of expected returns on assets when calculating pension liability.

Co-sponsored by Representatives Robert Andrews (D-New Jersey) and George Miller (D-California), the legislation also would eliminate a PPA provision requiring automatic termination of defined benefit plans for companies that file for Chapter 11 bankruptcy protection. Under the new bill, the plans would be terminated only if a U.S. Bankruptcy Court judge ruled such a move was necessary.

A PPA technical corrections bill (S. 1974) passed the Senate on December 19, 2007, with a smoothing provision while the House passed its version of a technical corrections bill (H.R. 3361) on March 12, 2008, without such a provision.

Retirement services industry groups are monitoring the smoothing issue closely. The American Benefits Council’s most recent policy statement on the issue is available here .