NEWS RELEASE

June 13, 2012
PR-12/11
For additional information:
Jason Hammersla
202-289-6700
202-422-4652 (cell)

Council urges Congress: enact pension funding stabilization as soon as possible

Funding stabilization measure ready now; PBGC premium changes need more study

WASHINGTON, DC — In a June 12 letter to congressional leadership, American Benefits Council President James A. Klein urged swift enactment of legislation to stabilize pension plan funding while expressing strong concerns about efforts to increase employer-paid insurance premiums to the Pension Benefit Guaranty Corporation (PBGC). “Because of the urgency of this issue, whatever legislative vehicle is moving should include pension funding stabilization,” Klein said.

The Council strongly supports the defined benefit pension plan interest rate stabilization measure previously approved by the Senate as part of the Moving Ahead for Progress in the 21st Century (MAP-21) Act (S. 1813) (the surface transportation funding bill), which is currently stalled in conference negotiations with the House of Representatives. On June 7, Senate Majority Leader Harry Reid (D-NV) proposed using the funding stabilization measure as a revenue offset for a separate bill, the Stop the Student Loan Interest Rate Hike Act (S. 2343)

The funding stabilization provision was based on a proposal developed by the Council in 2011 to help address the pension funding implications of historically low interest rates. This low-interest-rate policy, designed by the Federal Reserve Board to help stimulate economic recovery, has inadvertently triggered abnormally high pension liabilities. The Council’s questions and answers document on funding stabilization provides a comprehensive summary of the issue.

“As a result of the uncertainty of pension funding obligations, generally, and the prospect of inflated contributions, specifically, many critical business decisions are on hold. Hiring is delayed, layoffs are being announced, capital investments and other transactions vital to economic recovery are stymied. … Well-intentioned policy that is deliberately keeping interest rates at historic low levels to assist economic recovery is, in part, hindering that very recovery by imposing costs that simply are not needed to ensure income security for current or future retirees, nor financial protection for the Pension Benefit Guaranty Corporation (PBGC),” Klein said in the letter.

Reid has also suggested – as an additional revenue offset – inclusion of a proposal to increase defined benefit plan insurance premiums paid to PBGC. However, the Council’s letter argues that “careful congressional examination should be conducted before any change in PBGC premiums is considered,” citing a lack of clarity on numerous elements of the premium increase proposal including (1) the true nature of the PBGC’s surplus or deficit position, (2) the agency’s methodology for calculating the surplus or deficit, (3) the effect of interest rate volatility on the PBGC’s financial status, and (4) the urgency (or lack thereof) of premium increases, given the long-term nature of PBGC’s obligations and the need to fully examine the matter. The Council recently prepared a “myths and facts” document examining serious concerns with PBGC’s premium proposals.

“The Senate-passed funding stabilization measure not only represents good pension policy, but also is scored to raise revenue that can be used as a revenue offset for the costs of legislation to which it is attached. That fact and the urgency of the situation support our request that Congress include the Senate-passed measure as part of the first bill that is moving. Additionally, for the reasons noted above, the validity of the PBGC premium issue merits careful and balanced review before it is considered by Congress,” the Council’s letter concludes.

The Council’s letter is available here. For more information, contact Klein (jklein@abcstaff.org) or Lynn Dudley (ldudley@abcstaff.org), senior vice president, policy, at (202) 289-6700. You may also arrange an interview by contacting Jason Hammersla, Council director of communications, at jhammersla@abcstaff.org or by phone at 202-289-6700 (office) or (202) 422-4652 (cell).

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.