817-909-0778

EMAIL US !


Public Companies Ask Congress for Pension Funding Relief
By Mark Johnson, Ph.D., J.D. 

 

Low interest rates mean trouble for savers, especially institutional savers like pension plans.

 

Federal Reserve Board efforts to maintain a low interest rate environment, which are expected to persist through 2014, present a problem for pension plan sponsors who need to fund future health and retirement benefits.

 

General Electric, Boeing, and Lockheed Martin are among several big public companies seeking pension relief from Congress, according to a March 6th article by the Wall Street Journal.

 

Plan sponsors rely on assumed rates of return to determine appropriate funding levels for future obligations. When the assumed rate of return increases, as it tends to do in a high growth economy, current funding requirements decrease. A lower rate of return, as seen in today’s economic outlook, requires a higher current funding level in order to meet future obligations. By one industry estimate, each 1 point reduction in the assumption rate means 10 percent more in current contributions.

 

Pension plans are now under pressure to make large cash outlays to shore up underfunded pension obligations. The stage was set in 2008 following the United Airlines pension default, when a new law was passed that required companies to closing funding gaps by 2015. The law also required that companies use market rates to determine funding levels. Now that the deadline is looming, the Fed’s low interest rate policy is making compliance difficult. 

 

Companies are "not opening a plant or not launching a new product because they're sitting on the cash because it's going to look like they'll owe it to their pension plan," according to a Wall Street Journal quote by Lynn Dudley, senior vice president for policy of the American Benefits Council.

 

An effort is underway in Congress that would apply to private-sector defined benefit pension plans. Specifically, a rider was added to pending highway legislation (S. 1813) that would alter the “discount rate” that is used by plan sponsors to calculate required pension contributions. Modifications that would result in a higher rate, and lower payments, are favored by many underfunded plan sponsors. The transportation bill rider was passed in the Senate, 74-22, on March 14, 2012.

 

The U.S. government is backing the initiative as well, since it may result in increased short term tax revenues.

 

In Summary

 

Whether current pension relief becomes law or not, the effort reveals the financial distress being felt by pension plan sponsors in today’s low interest rate environment.

 

ABOUT THE AUTHOR. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or www.erisa-benefits.com.

 

ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.

 

March, 2012

 

Contact ERISA Expert Dr. Mark Johnson

You can reach Dr. Johnson via email or by phone at 817-909-0778. He is available to confidentially discuss a benefits matter.

 

Click on the link to read about his representative ERISA cases.

 


Employee Benefit Consulting


Expert Witness

Fiduciary Liability

Employee Benefit Plans

ERISA Fiduciary Facts

ERISA Group Health

Retiree Medical

Wall Street Research

Multi-Employer Pensions

 

 

Cases


Featured Cases

Resolved Cases

Current Cases

 

 

Publications


"Multiemployer Pension Plans Approach Pre-Crisis Funding Levels"

 

"Texas Pension Reform Results in Higher Credit Rating"

 

"401(k) Pension Litigation Draws Wins and Losses"

 

"Underfunded Police PensionsStrain U.S. Cities"

 

"Pennsylvania Pension Reform Bill Passes"

 

 

Industry News


Teamsters Pension Plan Warns Thousands of Beneficiaries that the Checks May Get Smaller

Maple City Ice Strikers Misled?

IRS Announces 2016 Plan Limitations

PBGC Posts 2016 Single and Multiemployer Premium Rates

Social Security Trustees Release 2015 Report

 

 

 

ERISA Benefits Consulting, Inc. Vineyard Centre I, 1450 Hughes Rd, Suite 120, Grapevine, TX 76051 817-909-0778

© ERISA Benefits Consulting, Inc. - 2003-2015 All Rights Reserved - Professional Websites