Bill to Clarify Use of Smoothing in Funding

New legislation introduced in the House would clarify that corporate pension plans can smooth assets over a 24-month period when determining plan funding obligations.

The bill, if passed, would supersede the Internal Revenue Service’s interpretation of the Pension Protection Act that requires plans to compute their funding obligations over two years using average asset values, which could generally force plans to make larger contributions. Smoothing allows plans to include anticipated future contributions to the plan in their calculations, while averaging does not.

The new legislation, the Pension Protection Act ERISA Amendments of 2008, co-sponsored by Reps. Robert Andrews, D-New Jersey, and George Miller, D-California, also would eliminate a Pension Protection Act provision that would require automatic termination of defined-benefit plans for companies that file for Chapter 11 bankruptcy protection.

Under the change proposed in the new legislation, the plans would be terminated only if a U.S. Bankruptcy Court judge ruled that the termination was necessary.

Filed by Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.