WASHINGTON - Congress is moving to relieve businesses of paying billions of dollars in required contributions to their employee pension plans in the coming year because the companies say they need to stay afloat in a worsening recession.
The legislation, which could reach the president's desk within days, has been a priority of business groups. They contend that, without the relief, some companies will have to freeze pension plans, lay off workers, or even go bankrupt.
Many businesses with defined-benefit plans have been staggered by the double blow of meeting requirements under a 2006 law that they fully fund their plans at the same time the value of the plans has been eaten up by declines in the markets where the pension funds are invested.
"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 legislation passed the House late Wednesday and is pending in the Senate. The measure also gives a break to some seniors who are required by law to draw down savings at age 701/2 from their now-depleted IRA and 401(k) retirement funds.
The measure does not erase funding obligations for companies. Instead, it adjusts some of the payment schedules set up in the 2006 pension-reform act in light of the economic downturn.
The American Benefits Council cited a recent study by the Center for Retirement Research at Boston College that found that equities held by private defined-benefit pension plans lost about $900 billion in the 12-month period ended Oct. 9 and that the total contribution that employers would be required to make to their plans in 2009 could nearly triple from this year to about $150 billion.
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 Jan. 1, 2008, rather than the fund's current, presumably weaker, status.
The bill suspends for 2009 the law under which seniors who have reached age 701/2 must withdraw a minimum amount from their retirement plan or IRA. Without the change, those that do not would be subject to a 50 percent excise tax penalty on the amount that should have been withdrawn.