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LABOR & EMPLOYMENT LAW — 11/27/08

Senate bill would modify pension distribution requirements

The Senate Finance Committee has proposed the "Worker, Retiree, and Employer Recovery Act of 2008," bipartisan legislation that would modify pension distribution requirements and plan asset determinations.

Senate Finance Committee chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) were joined by Senate Health, Education, Labor and Pensions Committee chairman Edward Kennedy (D-Mass.) and ranking member Mike Enzi (R-Wyo.) in announcing the legislation, aimed to help ease the financial strain on American families and businesses due to the lagging economy.

The bipartisan package includes important modifications to pension distribution requirements for seniors and businesses, as well as provisions included in the Pension Protection Technical Correction Act of 2008, originally passed by the Senate in December 2007 and the House in March and July of this year. The legislation also provides for a three-year phase-in of the funding target under the Pension Protection Act of 2006. This provision is effective as if included in the Pension Protection Act. The proposal is estimated to raise less than $50 million over ten years.

The package also extends for one year business tax relief that was included in the first economic stimulus package, and allows companies to write off a greater percentage of their investments in business assets to free up cash for payroll and other expenses.

"Americans need real help from Congress to make sure their retirement savings are safe and sound and available to them when they need it. The provisions we're offering here today are a viable effort to move the economy toward recovery," said Baucus, in a statement released upon introduction of the bill.

This bill contains important stop-gap measures to help protect pension holders given the great anxiety many face right now because of the economic downturn. It also contains tax relief measures to help employers weather the storm and continue to meet obligations to employees. These are common sense measures to help get through a difficult environment," Grassley said.

Worker protections. For purposes of staving off restrictions on benefit accruals as a result of being less than 60% funded, plans would be able to look back to the previous plan year for purposes of determining their funding status as it would apply to benefit accrual limits only. This provision would apply for plan years beginning on or after October 1, 2008 and before October 1, 2009. For plan years beginning January 1, 2009, that means a look-back to January 1, 2008 conditions.

One provision allows single-employer pension plans to account for expected earnings in addition to contributions and distributions when determining the value of the plan's assets. In addition, for those plans that fall below the set target funding percentage for a particular year (e.g., 92 percent in 2008), these plans will only be required to fund up to the specified funding percentage for that year, instead of 100 percent.

Other pension provisions address difficulties faced by multi-employer pension plans by allowing a freeze of their current funding status based on the previous year's level so that funds that have dropped in value due to the decline in the stock market can avoid being classified as "endangered" or "critical." For those multi-employer plans that have established a funding improvement or rehabilitation plan for 2008 and 2009, the funding improvement and rehabilitation period would be extended from ten years to thirteen years.

"This bipartisan package addresses immediate pension needs arising from the financial crisis," said Kennedy. "It's an important first step, but there is much more to be done to protect families' retirement security. In these hard economic times, Americans have much to be concerned about, but they shouldn't have to lie awake at night worrying whether their hard-earned pensions will survive. I look forward to working with my colleagues to do all we can to see that employees' pensions stay safe and sound."

"I'm pleased that we've been able to work together in a very short period of time and reach agreement on a balanced package that will help protect the retirement interests of individual retirees, workers, and pension plans," said Enzi.

A plea from the business community. In a November 12 letter , the ERISA Industry Committee (ERIC) and more than 300 companies and organizations urged Congress to approve temporary relief from the funding requirements enacted by the Pension Protection Act. If nothing is done to provide funding relief, many defined benefit plans could be frozen, placing participants at additional financial risk, warned consulting firm Watson Wyatt and many pension professionals.

"No one could have predicted the disruption that has occurred in our financial markets and the resulting impact on defined benefit plan sponsors," said Gene Wickes, global director of benefits consulting at Watson Wyatt. "New pension funding rules will squeeze pensions at exactly the wrong time, and both companies and workers will bear the consequences." Wickes had urged that Congress take "a common-sense approach to pension funding that reflects current economic conditions, not one based on theoretical models. Workers' retirement benefits are at stake."

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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