The American Benefits Council compared recent congressional action to an economic stimulus when it praised the U.S. House and U.S. Senate for ratifying the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act.
“These relief provisions, included as a revenue offset for the Medicare Elements, will help many large American employers manage artificially inflated pension obligations and reduce layoffs,” said James Klein, ABC president, in a statement.
The council said the measure will help save jobs because it gives companies more time to repay the huge losses brought about by depressed financial markets, low interest rates and the 2006 pension funding rules.
“This legislation will allow employers to responsibly fund their retirement plans while also driving economic growth,” said Klein.
In general, the act contains the following provisions:
- A choice between electing funding relief under the 2 plus 7 rule or the 15-year rule for any two years during the 2008-2011 period.
- There isn’t a requirement for a plan to provide ongoing accruals in order to be eligible for the funding relief.
- Under the cash flow rule, a plan sponsor that elects funding relief must make an additional contribution to the plan equal to the sum of (1) the aggregate excess employee compensation, and (2) the aggregate amount of dividends and stock redemption over a specific threshold.
- The act requires reporting and disclosure by plan sponsors electing funding relief.
- Generally, if a plan is at least 60 percent funded for the 2008 year, benefit accruals do not need to be frozen for the 2009 or 2010 plan years. The act provides similar short-term relief from the prohibited payment benefit restriction applicable to social security leveling options.
- The act provides a look-back rule that generally permits plan sponsors that are charities to use their credit balance for the 2010 and 2011 plan years if their plan was at least 80 percent funded for the 2008 year.
- Plans subject to the funding rules in effect before the Pension Protection Act of 2006 are generally allowed to choose modified versions of the 2- and 7-rule and the 15-year amortization rule. In addition, certain plans maintained by charities become subject to the pre-PPA funding rules.
More information about the act is available online at americanbenefitscouncil.org.
President Barack Obama signed the bill into law late last month.
“We applaud the efforts of House and Senate lawmakers, particularly those who have worked on a bipartisan basis to champion this important relief throughout the legislative process,” said Klein.
“This kind of constructive, collaborative approach will be essential for addressing retirement security challenges.”