Companies Make Plea to Congress for Pension Funding Relief

Pension funding requirements put in place by a landmark reform law that took effect during the recession threaten job creation and investment, a CEO told Congress on Thursday, October 1.

Bill Nuti, chairman and chief executive of NCR, appeared before the House Ways and Means Committee to argue for relief from the pension obligations instituted by the Pension Protection Act, a bill signed into law in 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, beginning in 2008.

The bill was prompted by a series of huge airline and steel company pension defaults that sent the deficit of the federal pension insurance agency soaring.

But the severe recession that hit last year could force companies to put money into their pension plans rather than business operations, according to Nuti.

Experts from Mercer and Watson Wyatt Worldwide testified that defined-benefit pension plans have lost substantial value over the past year and many face significantly higher contributions in 2010. NCR’s pension fell from 110 percent funded to 75 percent funded over the course of 2008.

Nuti voiced support for draft legislation written by Rep. Earl Pomeroy, D-North Dakota, that would give companies more time to shore up their pension plans.

The House Education and Labor Committee approved a similar bill. Another has been introduced by House Minority Leader John Boehner, R-Ohio.

All three measures would allow companies to make interest-only payments for two years on their 2008 losses and then give them seven years to amortize pension shortfalls.

The Pomeroy and Boehner bills also implement 24-month smoothing of assets within 20 percent of their fair market value.

The House labor panel bill limits smoothing to 10 percent. All the bills give companies more flexibility in selecting the interest rates they use to calculate their pension payments. They come in addition to pension relief Congress approved late last year.

Without further relief, companies might be forced to reduce employment as they cut costs to make room for pension funding, according to Nuti.

“It’s a very serious jobs issue,” Nuti said. “You will see jobs eliminated. You will see investment eliminated.”

But the same factors that catalyzed the 2006 pension reform law—company defaults and a growing deficit at the Pension Benefit Guaranty Corp.—are again concerns for some members of Congress.

“While giving companies additional breathing room to meet their pension obligations may make sense on the surface, we must also recognize that too much latitude could erode the likelihood of workers receiving the full benefits they were promised and could further expose taxpayers to the costs of bailing out the PBGC,” said Rep. Dave Camp, R-Michigan and the ranking member of the Ways and Means Committee.

For the most part, witnesses and congressional members at the hearing voiced support for easing pension requirements while companies struggle to survive the recession.

“It reveals agreement on both sides of the aisle on the need to provide timely funding relief,” Pomeroy said in an interview.

Nuti portrayed the help as temporary. “Think of it as a timeout, not a bailout,” he said.

But Damon Silvers, associate general counsel of the AFL-CIO, says that NCR should not receive pension relief because it froze its plan in 2007. Giving relief to all companies instead of just those where employees are accruing benefits sends the wrong message, he maintains.

“You guarantee that one of the casualties of the financial crisis will be what retirement security remains for American workers,” Silvers said in an interview.

Norman Stein, senior legislative counsel for the Pension Rights Center, said companies might not allocate pension savings for job creation.

“The money could be used for any purpose, including moving jobs overseas, automation or executive compensation,” Stein said in prepared testimony.

Although the details of relief have to be worked out, Pomeroy expressed confidence that a bill could be approved by the end of the year, despite a crowded legislative calendar.

“It is hard in a legislative environment consumed by health care reform to pay attention to specific technical issues that need to be addressed,” Pomeroy said. “There are things that have to be done this year right now or there are going to be jobs unnecessarily lost.”

—Mark Schoeff Jr.
 
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