Pension relief for businesses awaits Bush's OK
By JIM ABRAMS – December 12, 2008
WASHINGTON (AP) — 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."
___
On the net:
Information on the bill, H.R. 7327, can be found at http://thomas.loc.gov
Copyright © 2008 The Associated Press. All rights
reserved.