Roughly 300 companies are lobbying congress to temporarily loosen pension-funding rules. The companies, which span multiple industries and include DuPont, Ford, IBM, GlaxoSmithKline, Kraft, Northrop Grumman, Pfizer, and Verizon Communications, say that fully funding their pensions under current economic conditions will lead to widespread job losses and benefit reductions.
The letter reads:
"At a time when companies desperately need cash to keep their businesses afloat, the new funding rules will also require huge, countercyclical contributions to their pension plans. Consequently, many companies will divert cash needed for current job retention, job creation and needed business investments, and instead contribute the cash to their pension plans to fund long-term obligations due many years after the current market conditions return to normal.… Unless the funding rules are modified, they will cause an increase in unemployment and slow economic recovery."
The Pension Protection Act of 2006 included provisions meant to ensure that company pensions are funded adequately to meet the promises made to workers and retirees. The new law requires companies to gradually raise their "funding target" for pension plans from 90 percent (the amount required before the PPA) to 100 percent over seven years. The desired funding levels are 92 percent for 2008 and 94 percent for 2009.
The companies are asking Congress for more time to reach full funding and accounting changes that would allow companies to spread pension plan losses over longer periods of time. "Because of unprecedented market swings, plans that have historically been well funded may now come in under the thresholds established by the Pension Protection Act," says Daniel Houston, president of retirement and investor services at the Principal Financial Group, one of the companies that signed the letter. "Companies may be forced to inject cash at the worst possible time."
Many companies won't have to put cash into their plans to raise funding levels until September 2009, which gives pension plans some time to recover from market losses. Companies that have more severely underfunded pensions may have to start contributing money in April.
Equity in private defined-benefit plans fell nearly $1 trillion over the year ended Oct. 9, 2008, according to calculations by the Center for Retirement Research at Boston College, nearly halving their value from $2.1 trillion in October 2007 to $1.2 trillion this year. Firms are going to have to increase contributions by about $90 billion in 2009 to make up for the drop, the study found.
Tell us, should companies get more time to fund pensions?