AUSWR
The Association of U S West Retirees
 

 

 

Congress acts to help employer pension funds hit by recession; bill awaits Bush's signature
By Jim Abrams,
Associated Press
Minneapolis Star Tribume
Friday, December 12, 2008


WASHINGTON - In one of its final acts of the year, Congress on Thursday relieved businesses of paying billions of dollars in required contributions to their pension plans in the coming year.  Companies say they need the cash to stay afloat in a worsening recession.

The legislation has been a priority of business groups, which contend some companies will have to freeze pension plans, lay off workers or even go bankrupt without the relief.

A voice vote in the Senate sent the measure to President George W. Bush.  The House approved the bill late Wednesday.

Many businesses with defined-benefit plans have absorbed a double blow: abiding by a 2006 law that they fully fund their plans and seeing the value of the plans eroded by declines in the markets where the pension funds are invested.

Senate Finance Committee Chairman Max Baucus, D-Mont., one of the authors of the 2006 law, said he and most other senators "agree that those contributions should be postponed or later modified in order to keep companies viable, to allow companies to meet payrolls in these difficult times and prevent them from having to freeze their benefits."

The legislation also gives a break to some older people who, at 70 1/2, are required by law to draw down savings from their now-depleted individual retirement accounts and 401(k) retirement funds.

The measure does not erase funding obligations, but does adjust some payment schedules set up in the 2006 law, in light of the economic downturn.

It is "an important first step to preventing a crisis next year as plan sponsors face potentially billions of dollars in funding requirements and plan participants face benefit limitations as a result of the extraordinary economic downturn," said Mark Ugoretz, president of the ERISA Industry Committee, which represents the retirement and health plans of the nation's largest employers.

"The drop in the value of pension plan assets coupled with the current credit crunch has placed plan sponsors in an untenable position," business groups, including the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers, wrote lawmakers.

The American Benefits Council cited a recent study by the Center for Retirement Research at Boston College that said equities held by private defined-benefit plans lost about $900 billion in the 12-month period ending Oct. 9, and that the total contribution employers will be required to make to their plans in 2009 could almost triple, from just over $50 billion to almost $150 billion.

The crisis comes as many companies are eliminating traditional defined-benefit pension plans in favor of defined-contribution plans such as 401(k)s.

The legislation allows pension plans to stretch out unexpected asset losses over 24 months in order to soften the effects of 2008 plan declines, and eases the transition to new funding rules under which plans must be 92 percent funded in 2008 and 94 percent in 2009.

It also allows sponsors of multiemployer plans to temporarily freeze the status of endangered plans.  It provides a "look back" on rules requiring plans less than 60 percent funded to be frozen.  Companies would be allowed to base that determination on the fund's status on Jan. 1, 2008, rather than the fund's current, presumably weaker, status.

Businesses and unions must still fully meet their pension obligations to their workers, said Rep. Howard "Buck" McKeon of California, top Republican on the House Education and Labor Committee.  But with the short-term relief, Congress is "potentially staving off job cuts, benefit reductions or financial burdens that would be far more harmful to workers and retirees in the long term."

Finally, the bill suspends for 2009 the law under which people 70 1/2 and older must withdraw a minimum amount from their retirement plan or IRA.  Those that do not are subject to a 50 percent excise tax penalty on the amount that should have been withdrawn.

People have lost trillions of dollars from their retirement accounts over the past few months, said House Education and Labor Committee Chairman George Miller, D-Calif., said.  The bill should "provide important relief to seniors who may face a steep tax if they do not make a withdrawal from their depleted retirement accounts."

Information on the bill, H.R. 7327, can be found at http://thomas.loc.gov

http://www.startribune.com/politics/national/congress/35963434.html?elr=KArksUUUU