Benefit Plan Alert Dec. 08
Worker, Retiree and Employer Recovery Act of 2008
Congress recently passed the Worker, Retiree and Employer Recovery Act of 2008, which includes important provisions that ease funding requirements for employer-sponsored pension plans. The Act is expected to be signed by President Bush when it reaches his desk. Absent the new legislation, these plans would have been forced to make significantly increased contributions during the current financial crunch when they are very short on cash. The new law provides pension funding relief for both single-employer and multi-employer plans. Here is a brief summary:
Relief for single-employer plans
Pension plans are allowed to “smooth” out their unexpected asset losses. The new law permits employers to “smooth” the value of pension plan assets over 24 months instead of having to apply the mathematical average that Treasury requires. This change will soften the accounting of 2008 plan losses.
Adjust the transition to the new funding rules. Previous pension legislation phases in full pension funding
targets from 90 to 100 percent over five years (2008 – 92 percent, 2009 – 94 percent, 2010 – 96 percent, 2011 – 98 percent, 2012 – 100 percent). If a plan misses its target in a phase-in year, then the target automatically increases to 100 percent. The new law adjusts the rule to allow plans which miss their phase-in funding target to retain the same target and not jump to 100 percent. For example, for plans that are less than 92 percent funded in 2008, their shortfall would be estimated relative to 92 percent. And with a sizable number of plans below 92 percent funded next year, the adjustment of this phase-in rule could provide significant relief.
Relief for multi-employer plans
Plans may elect to “freeze” their plans' status for one year. For plans starting between October 1, 2008 and
October 1, 2009, multi-employer plans may elect to freeze their current funding status based on the previous year's level. This would freeze the terms of the funding improvement or rehabilitation plan adopted at any time during the previous plan year.
Plans may elect to extend correction periods. Plans generally must bring their funded position up to statutory
standards within a correction period (10 years or 15 years). This structure aims at enabling stakeholders in
troubled plans to phase in the higher contributions or deeper benefit cuts over a period of time. Under the new law, plans may elect a three-year extension of the current funding improvement or rehabilitation period, from 10 to 13 years and from 15 to 18 years. Election of this extended correction period would help offset 2008 equity losses.
Please keep in mind that this is only a summary of these new provisions. If you would like to discuss these or any other provisions in the new legislation in greater detail, call us and/or your legal counsel for additional guidance.
Benefit Plan Advisor is produced quarterly by Bober, Markey, Fedorovich & Company’s Employee Benefit Plans Services Team. If you would like additional information about our services for sponsors or administrators, please contact James E. Merklin, CPA, CFF, CFE at 330.762.9785 or by email.
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