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President Bush has signed a law that will ease pension funding requirements for retirement plan sponsors and will reduce penalties for retirees who choose to defer withdrawals from 401(k) plans and individual retirement accounts during 2009.
The House introduced and passed The Worker, Retiree, and Employer Recovery Act (HR 7327) on Dec. 10, 2008, and the Senate quickly followed by passing the legislation by a unanimous voice vote the next day. The measure received overwhelming bipartisan support.
The president signed it on Dec. 23, 2008.
Business leaders and retirement advocacy groups had lobbied Congress for weeks asking for relief from stricter pension funding rules mandated by the Pension Protection Act of 2006 (PPA), which was designed to strengthen the financial security of traditional pension plans.
A dramatic downturn in the stock market led to massive losses in retirement plans—traditional pension and defined contribution plans—and supporters of the measure argued that enforcing the new and stricter funding rules would create additional financial hardships for companies already weakened by the economic slowdown. A recent report from the Center for Retirement Research at Boston College estimated that investments held by U.S. corporate pension plans lost nearly $900 billion between October 2007 and October 2008.
Officials with business groups praised the swift action of Congress in approving HR 7327 but warned that further action will be needed to prevent additional financial hardships for pension plan sponsors.
“Passage of The Worker, Retiree, and Employer Recovery Act gives hope to employer pension plan sponsors fighting against the current economic downturn,” said James A. Klein, president of the American Benefits Council. “As the global economy slowly recovers, additional relief will likely still be needed to limit the effect of market turmoil on American companies. Final passage of HR 7327 is an important first step in shoring up our retirement plans and signals that lawmakers recognize the critical importance of protecting employer-sponsored pensions.”
The legislation eases the requirements of the PPA by allowing single-employer plans to phase in pension funding targets over three years and will permit single-employer plans to adjust funding contributions, distributions and expected earnings temporarily to calculate the value of plan assets.
The legislation includes technical corrections to the PPA, which have been sought after by business leaders since the law was enacted. The technical corrections are designed to clarify the law’s provisions affecting cash balance pension plans, asset smoothing and rates of return for government pension plans.
The House introduced and circulated a similar proposal in November 2008 during the start of the congressional lame-duck session following the presidential elections. The White House voiced initial opposition to the measure because of a controversial proposal to change the tax status of pension plans sponsored and operated by Indian tribal governments.
Bush dropped his objections to the pension relief proposal after House leaders stripped the Indian tribe provision from the final bill.
The ERISA Industry Commission (ERIC) was among groups stating that more action was needed to ensure that more plan sponsors do not freeze or eliminate their defined contribution plans.
“Congressional approval of limited relief for pension plan sponsors suffering from the funding triggers of the Pension Protection Act of 2006, while welcome for some plan sponsors, will have little impact on many other companies hit by the sudden downturn in the economy,” said Mark Ugoretz, president of ERIC.
Ugoretz and other business group leaders are urging Congress and President-elect Barack Obama to re-examine the issue when the 111th Congress convenes and Obama takes office in January 2009.
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