Worried that new pension funding requirements that take effect next year could cripple corporations, business and finance officials say they can't wait for president-elect Barack Obama and the 111th Congress to be sworn in. So they are pressing lame duck legislators to convene this month and stall implementation of some Pension Protection Act (PPA) provisions until the markets stabilize and credit is more widely available.
The double-whammy of plunging pension assets and the credit crunch put plan sponsors "in an untenable position" when it comes to meeting full funding requirements, a number of business organizations said in a joint letter to congressional leaders. "At a time when companies need cash to keep their businesses afloat, they are also required to make unexpectedly large contributions to their plans in order to meet funding requirements," states the letter signed by the Association for Financial Professionals (AFP) and Financial Executives International (FEI), among other organizations.
As a result, companies could be forced to freeze or terminate their plans or reduce retirement benefit accruals to survive. "We do not believe that in enacting the PPA, Congress intended companies to be forced to make this kind of decision," write the signatories, including the Business Roundtable and the Chamber of Commerce.
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What's more, freezing pensions won't eliminate the huge funding obligations triggered by the market meltdown, notes Judy Schub, managing director of AFP's Committee on the Investment of Employee Benefit Assets . "The magnitude of some of these increases are two- to three-times than companies would otherwise be contributing to the plans," Schub explains. "Adding that kind of cash in an environment where there is no credit or where credit is expensive will put an enormous strain on companies and that's likely to cost jobs."
The letter to Rep. George Miller, chairman, and Howard McKeon, ranking member, of the House Committee on Education and Labor, asks the committee to permit smoothing of unexpected losses, remove restrictions on the extent of asset smoothing, allow sufficient transition to new funding rules and permit new funding election methods to keep plans viable.
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