Congress acts to help employer pension funds hit by recession;
bill awaits Bush's signature
By Jim Abrams,
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
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)
The measure does not erase funding obligations, but does adjust
some payment schedules set up in the 2006 law, in light of the
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
"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
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