Letter to the House Urging Immediate Action on Private Pension Relief
April 14, 2010
The National Education Association urges the House of Representatives to take immediate action on private pension funding relief to mitigate the impact of recent market losses on private-sector defined benefit pension plans.
Economic turmoil and market downturns in recent years have had a negative impact on the funded status of defined benefit pension plans across the country. No matter how conscientiously a sponsor might have previously funded its defined benefit pension plan, it could not have predicted or been prepared to withstand a 40 percent decline in the market value of the plan’s assets within a nine-month period. In accordance with the aggressive funding rules in Pension Protection Act of 2006 (“PPA”), plans with suddenly undervalued assets will be forced to direct significant resources toward their funding obligations. This is true despite passage of the Worker, Retiree and Employer Relief Act in December 2008, which included two provisions that could potentially reduce funding obligations for many plan sponsors. Even with these changes, minimum contributions requirements for 2010 and 2011 will still far exceed the minimum contribution requirements for 2008.
NEA’s knowledge about the severe challenges that private sector employers are facing in maintaining their defined benefit pension plans has been gained first hand through the experience of our affiliated associations throughout the country, nearly all of whom maintain defined benefit pension plans – on both a single employer and multiemployer basis – for their own employees. For the most part, NEA’s affiliates are financially stable, mature organizations with predictable cash flow. These organizations take pride in providing retirement security for their staff employees by maintaining well-funded defined benefit pension plans. Yet, application of the stringent funding rules of the PPA to plans that have suffered a drastic and unpredictable market drop in the value of their funding, has suddenly made sustaining those plans a nearly unbearable burden.
And it is not just the plans that are jeopardized by this funding crisis: many of NEA’s affiliated associations are being forced to postpone, curtail, or eliminate regular services, staffing, and capital improvements, often on top of increases in member dues. This is because, absent relief, the average NEA affiliate is facing the immediate obligation to make funding contributions equal to 37 percent of its payroll, just to maintain its defined benefit pension plan. Unless they are given some temporary flexibility in how to recoup the severe investment losses of the last two years suffered by their plans, many of these plans will not be sustained, and the organizations will be substantially damaged financially as well.
Given these urgent circumstances, we urge immediate passage of legislation that would offer funding methods, for both single-employer and multiemployer plans, to isolate and separately account for the losses incurred as a result of the cataclysmic financial market collapse of late 2008 and early 2009. In particular, NEA and our affiliates strongly support allowing 15-year amortization of recent market losses approach, which would greatly reduce the short-term pressures on single-employer plan sponsors. We also strongly support permitting 30-year amortization for investment losses for multiemployer pension plans.
Funding the short term investment losses over a fixed period with a fixed interest rate is just like a normal mortgage obligation. A 15-year amortization would save sponsors from having to cover the extraordinary, short-term investment losses with an immediate huge cash contribution, thereby sparing them being put in impossible financial positions. Allowing funding of the extraordinary, short-term investment losses over time, will permit pension promises to employees to continue to be met, and the Pension Benefit Guaranty Corporation to avoid a host of new liabilities.
The Senate has already passed private pension relief as part of the American Workers, State and Business Relief Act. We urge the House to act quickly on similar relief.
Thank you for your immediate attention to this most urgent matter.
Director of Government Relations