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Bill Would Extend COBRA, Provide Pension Funding Relief

May 20, 2010
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Federal COBRA premium subsidies would be extended through year-end and employers would have more time to fund their pension liabilities under a tax bill that the House could vote on this week.

Under the measure—proposed by Senate Finance Committee Chairman Max Baucus, D-Montana, and House Ways and Means Committee Chairman Sander Levin, D-Michigan—the 65 percent, 15-month COBRA premium subsidy would be extended to involuntarily terminated employees through the end of the year.

Without congressional action, employees who lose their jobs after May 31 will not be eligible for the subsidy.
The measure, H.R. 4213, also would give employers more time to fund pension plan shortfalls.

Under current law, employers must amortize funding shortfalls over seven years. The proposed American Workers, State and Business Relief Act of 2010 would give employers two alternatives to that schedule.

Under one alternative, employers could amortize funding shortfalls over 15 years for any two plan years between 2008 and 2011.

Under the second alternative, employers would have to pay interest on a funding shortfall for only two of the plan years they choose. After that, the seven-year amortization period would begin.

For example, if an employer chose the latter approach for the 2010 plan year, it would pay interest on the shortfall in 2010 and 2011. Then the shortfall would be amortized over seven years starting in 2012.

Other provisions in the bill, though, would require employers that use either temporary funding schedule to contribute more to their plans if they paid “excessive” employee compensation or shareholder payments. A summary of the actual legislation, which was not immediately available, does not define excessive.

Under a previous version of the legislation, an amount equal to compensation that is in excess of $1 million paid to any employee would have to be paid to the pension plan. If an employer had 10 employees who each made $1.5 million, the employer would have to contribute an extra $5 million to the plan.

The House could vote on the bill this week and the Senate could vote on the plan next week.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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