Businesses Seek Relief from Rocketing Pension Costs

Businesses Seek Relief from Rocketing Pension Costs

A business-backed coalition is pressing the House of Representatives to act quickly on pension funding reform before April deadlines that affect defined benefit plans.

Companies weakened by the recession say they need an extension of the deadlines for fully funding their defined benefit pension plans. Without that relief, they say they may be forced to cut back capital spending, postpone hiring and lay off more employees.

The Senate added an amendment to the American Workers, State and Business Relief Act enacted March 10 that would allow businesses to take up to eight more years to repay pension shortfalls. Similar legislation in the House still needs to be approved by the Ways and Means Committee.

Companies with defined benefit pension plans must certify their funded status by April 1. Those that miss that deadline and certain other targets may have to freeze plans, said Lynn Dudley, senior vice president of policy at the American Benefits Council.
Some companies face an April 15 deadline for quarterly contributions to their defined benefit plans. Without relief, they may have to cut deeper into spending or payroll to come up with the cash needed to cover pension contributions, Dudley said.

"This is not a bailout, it's simply a request for a timeout, a transition to the higher funding requirement," Dudley told reporters in a March 24 conference call. She noted that business and labor both support pension funding reform.

The Senate language and House bill would amend the 2006 Pension Protection Act to allow companies to extend the seven-year deadline to eliminate shortfalls in their plans.

One option would add two years of interest-only payments, for a total of nine years. The other would allow companies to fully fund their pension programs over 15 years.

The main reason for requesting the extensions is the drubbing pension plan values and employers took in the recession. Pension plans at Con-way, a $4.3 billion freight company, were more than 100 percent funded in September 2008, but by February 2009 their value dropped 40 percent.

"The difference between the asset values and perceived obligations was extremely large," said Randy Mullett, vice president of government relations and public affairs for Con-way. As the company's obligations shot up, it cut capital spending and pay cuts, he said.

Absent reform, many companies' contribution levels for 2010 are expected to double, and to quadruple in 2011, said Dudley.

Contact William B. Cassidy at