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- Accomplishment: Pension Relief Act, also known as the "Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010."
- What does it mean?
Allows employers employers with underfunded DB plans may elect to amortize funding shortfalls for any two plan years between 2008 and 2011 either over a 15-year period or by making interest-only payments for two years followed by seven years of amortization"(BusinessWire). The changes are in Notice 2010-55 and Notice 2010-56, which apply, respectively, to single-employer pension plans and "multiemployer defined benefit plans"(Staff Writer).
Basically, the changes made by the bill mean if businesses are in danger of losing their plan, they now can choose to pay it off slowly. - Why does it matter?
The new rules allow benefit both employees, companies, and the economy: companies that were in danger of losing their pension plans may be able to keep them. This makes the companies more attractive to skilled employees.
A lot of employers were hit hard by the economic downturn. However, "by temporarily easing the effects of new rules plan sponsors were supposed to be using to calculate plan funding levels and contribution requirements"(Bell), the bill helped many employers keep their pension plans.
Marty Schwenner, chief financial officer of Renewable Energy company Magnetek, summed up what this act means to his company: "We are very pleased with this development in pension relief. [...] We expect either funding relief option would provide us with improved near term cash flow due to expected lower pension contributions"(BusinessWire).
One last benefit I would like to mention is goodwill. Think about this: if you hear a company is cutting benefits for their employees, and you know of another company that presents a similar option for the same, or close to the same, price, would you choose the company you know to provide their employees with better benefits? Many consumers receive information from email lists, or simply by word of mouth, and opt-in to companies that make special effort to treat their employees well (I've personally witnessed a large shift of consumers to Wegman's rather than other grocery stores, even if it adds an extra 30 minutes to the drive, for this very reason) or will blacklist certain chains known to mistreat their workers (we all remember the WalMart scandal after news reports were released on the women's wage gap and making workers work off the clock). By giving these companies a chance to keep their pensions while striving to recover from the economic dip, this new act also provides them with more opportunity to retain favor in the eyes of the public consumer.
References
Bell, Allison. IRS Answers Pension Relief Questions. LifeHealthPRO. Web. 20 Dec. 2010.
Business Wire. Magnetek Expects Improved Pension Outlook With Passage Of Pension Funding Relief. Business Wire. Web. 1 Jul. 2010.
Business Wire. Pension Funding Relief Could Provide Between $19 Billion And $63 Billion Reduction In Required Contributions Over Five Years, Towers Watson Analysis Finds. Business Wire. Web. 2 Aug. 2010.
Staff Writer. IRS Starts Implementing Pension Relief Rules. LifeHealthPRO. Web. 2 Aug. 2010.
