July 16, 2010 Volume 111 Number 14

Union pension plans get more time to recover under new law

A new law will give pension plans more time to make up for investment losses from the 2008 financial market downturn. HR 3962, signed into law by President Barack Obama June 25, will take pressure off “defined benefit” pension plans, which in the last year have had to ramp up employer contributions and cut back benefits.

The law gives multi-employer pension plans 30 years to make up for those losses; before, they had 15 years.

It also allows them to recognize (or “smooth”) the losses, for accounting purposes, over a 10-year period; previously losses had to be recognized over a five-year period. That change means that some plans that were healthy before the downturn can avoid declaring “critical” or “endangered” funding status; those actuarial designations force trustees to cut benefits and raise employer contributions.

“We’ve accomplished here what we set out to do,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans. DeFrehn’s group has been lobbying for pension funding relief for over a year. DeFrehn said the new law will allow union employers that participate in multi-employer pension plans to remain competitive.

The law also grants some relief to single-employer pension plans, though few companies are likely to use it. Single-employer plans will get to amortize losses over nine or 15 years, under the new law, instead of the previous seven years. But companies that accept that funding relief will have to make additional pension catchup contributions — matching any amount they pay executives over $1 million a year or any amount they pay in extra dividends or stock buybacks.

For the multi-employer pensions to be eligible for the relief provisions, actuaries have to certify they’ll still have sufficient assets to pay all promised benefits over the 30 years. And plans that choose the longer catch-up period will face some restrictions on increasing benefits, unless employers make additional contributions to cover the benefit increases.

DeFrehn said one open question is how the new law will affect multi-employer plans that have already adopted “rehabilitation” schedules: Will they be able to re-certify their funding status and decrease the amount of make-up contributions imposed on participating employers? NCCMP is asking Congress to clarify that the law is retroactive, but given a tight election-year legislative schedule, DeFrehn said the group is also asking the Treasury Department to interpret that aspect of the law.

And NCCMP will continue to press for enactment of other relief measures that were contained in a bill sponsored by Sen. Bob Casey (D-Penn.), including provisions that would allow multi-employer plans to partition off groups of workers “stranded” when a large employer goes out of business.

The bill, which also made some changes to Medicare reimbursements, passed unanimously in both the House and Senate.


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