Now the legislation must overcome White House resistance to be signed into law. When the bill came up in the Senate during the lame-duck session in November, the Bush administration said it would undermine protections ushered in by a major pension reform bill in 2006.
The relief bill eases the rules contained in the Pension Protection Act of 2006. The first overhaul of pension law since 1974, it significantly tightened defined-benefit funding rules and required companies to meet 100 percent of their obligations within seven years.
The measure, which went into effect this year, was a response to a series of huge airline and steel company pension defaults that sent the government pension insurer’s deficit soaring.
Under the bill Congress approved Thursday, pension plans would be allowed to smooth unexpected asset losses over 24 months. Treasury Department regulations to implement the pension law essentially would have applied mark-to-market rules.
The smoothing, however, cannot allow a pension plan to vary by more than 10 percent of its fair market value. Corporate representatives say many companies need a wider “corridor.”
The measure would allow plan sponsors more time to achieve 100 percent funding and to use their funded status as of January 1, 2008, to determine whether their plans are at risk and have to be frozen.
The bill also waives for 2009 the requirement that people take a minimum amount out of their 401(k) funds each year when they reach age 70½.
“We’ve made pension plan requirements responsive to the needs of America’s seniors and employers, and I believe this bill is a solid effort to move the economy toward recovery,” said Sen. Max Baucus, D-Montana and chairman of the Senate Finance Committee, in a statement.
Business groups representing hundreds of corporations have been pressing Congress for weeks for a break on pension obligations. They assert that money companies sink into the plans could otherwise be used for investment and job creation to help pull the economy out of the recession.
Advocates are urging President Bush to sign the bill. Jason Hammersla, director of communications at the American Benefits Council, says the White House has been silent on the bill this week.
“The fact that they haven’t released a statement of administration policy is a good sign,” Hammersla said. “We are hopeful.”
A recent study by consulting firm Mercer shows that November was the second consecutive month of record pension fund losses for large companies. As of the end of last month, a $60 billion surplus at the beginning of the year for S&P 1,500 companies had collapsed into a $280 billion deficit.
The Bush administration, which was a champion of the 2006 pension reform law, opposes modifying its provisions. The Pension Benefit Guaranty Corp., the government pension insurer, estimated that reduced pension contributions would add $3 billion to the agency’s approximately $14 billion deficit.
The White House also asserts that higher pension contributions aren’t required until September 2010. In a response to the administration, the benefits council said that companies would have to significantly increase funding this April to avoid benefit restrictions.
Without relief, “there will very likely be massive plan freezes, widespread job loss, and, in some cases, company bankruptcies, as well as a deepening of the recession,” the council wrote in a letter to Capitol Hill leaders.
If Bush doesn’t sign the bill now, “there will be employers that make [funding] decisions based on current law,” said Jan Jacobson, senior counsel for retirement policy at the benefits council. “Some of those decisions may involve plan freezes and layoffs in order to have the money necessary for their funding obligations.”
A House leader on pension reform emphasized that the bill would not undermine the 2006 law.
It gives “employers more time to fund the pension promises to their workers,” Rep. Earl Pomeroy, D-North Dakota, said in a statement. “It does not change the obligations employers have in pension plans, but instead provides appropriate relief in light of the unprecedented volatility in the markets.”
But a couple business groups say that the relief bill doesn't go far enough and that many companies will need more help next year. Mark Ugoretz, president of the ERISA Industry Committee, asserts that the measure fails to give a break for plans that have to sharply increase their pension payments because they're less than 80 percent funded.
"Ultimately, the bill does not provide adequate relief, falling short of addressing or even reflecting the dramatic downturn in the markets," Ugoretz said in a statement.
—Mark Schoeff Jr.