The employers that still promise employees a defined level of retirement income need regulatory flexibility to get through the financial crisis, benefits consultants are warning Congress.
The benefits consultants, employer group representatives and others testified today at a House Ways and Means Committee hearing.
Employers have shut down many traditional defined benefit pension plans in recent years, in part because of the expense, in part because of the regulatory complexity, and in part because of a sense that many employees preferred to manage their own 401(k) plan accounts.
Today, 401(k) plan participants are feeling the effects of the financial crisis.
But, if any employers are going to show new interest in defined benefit plans as a result, the government has to do something about the rules governing pension funding requirements, according to Mark Warshawsky, retirement research director at Watson Wyatt Worldwide, Arlington, Va.
Congress tightened pension funding and reporting requirements in 2006, when it passed the Pension Protection Act.
PPA includes many useful ideas that would have worked well in normal times, Warshawsky said.
"Yet, at the exact time that the somewhat stricter funding regime of PPA was coming on line, we experienced an almost unprecedented financial meltdown and deep recession," Warshawsky said. "Huge funding contributions would have been required when corporate cash flows were low and capital markets closed."
Congress reacted in 2008 by passing the Worker, Retiree and Employer Recovery Act of 2008, which let employers postpone or reduce some pension plan payments, and the Internal Revenue Service has used guidance to further lighten the load this year, Warshawsky said.
The average 2008 regulatory funded status was 96% and employers had to make about $40 billion in funding payments.
Without any changes, the average funded status would have dropped to 75% this year, requiring employers to make $110 billion in funding payments for the 2009 plan year, Warshawsky said.
Instead, new laws and regulations increased the average 2009 regulatory funded status to 94%, and reduced required funding payments about $32 billion, Warshawsky said.
But, if Congress fails to act, the required payments will increase to $94 billion in 2010 and to $146 billion in 2011, he said.
Craig Rosenthal, a principal at Mercer, a unit of Marsh McLennan & Companies Inc., New York, talked about a survey of 874 Mercer pension plan clients.
The funding relief provided by Congress and the IRS has been a big help to those clients, Rosenthal said.
