US - Company officials and pension experts called for Congress to enact additional pension funding relief measures at a Ways and Means Committee hearing yesterday.
At a hearing regarding corporate pension funding levels, speakers said easing the funding requirements will help save jobs and hasten an economic recovery.
"This issue is critically important not only to NCR and its employees, but also to every company, every employee, and every community across the United States. This is far more than a pension issue. Fundamentally, it is a jobs issue and a critical economic recovery issue," said technology company NCR chief executive William Nuti.
He said because the new funding targets are required by law, companies will be forced to "divert resources from our business and from job creation and retention" in order to meet funding payments.
Speakers said companies are being hit with a double whammy of stricter funding requirements under the Pension Protection Act of 2006 and lower asset values as a result of the market crash.
Consulting firm Watson Wyatt Worldwide estimates that funding status will only reach 84% at year end and require US$90bn in pension contributions next year. In 2011, the firm expects contributions to increase to $146bn.
Watson Wyatt director of retirement research Mark Warshawsky said it is imperative that congress consider offering additional relief now.
"If there is to be a good chance of a renewal of interest in defined benefit plans, for the mutual advantages of employers, workers, retirees, and society, it is important, at a minimum, that there be a supportive public policy environment for their continuation and creation," said Warshawsky.
He added: "Perhaps of more immediate impact, at this sensitive time in the economic cycle, when weakness is still widespread, particularly in the job market, and the recovery, apparently, is just coming forth, we must be sensitive to the broad economic implications of the timing and amount of pension funding requirements."
The US government has already enacted two funding relief measures since 2008. The Worker, Retiree and Employer Recovery Act of 2008 allowed, among other things, asset smoothing that takes expected returns into account. And in March 2009, the Internal Revenue Service issued a clarification that allowed sponsors leeway in selecting the yield curve used to determine liabilities.
Despite these measures, Mercer said many companies will have a difficult time meeting contribution requirements going forward.
"We expect that plans will have little or no credit balance available for use in satisfying these higher 2010 contributions," Mercer principal Craig Rosenthal told the committee.
Nuit said companies are still committed to fully funding their pension schemes, but are asking for more time to do it.
Enhanced powers for The Pensions Regulator (TPR) to prosecute and fine company directors who "wilfully or recklessly" put their defined benefit (DB) pension scheme at risk will be hard to enforce, commentators say.
Melrose has pledged to contribute up to £1bn to GKN's pension schemes as part of a final offer to acquire the engineering business.
Existing master trusts will be forced to pay £41,000 when applying for authorisation under the upcoming regime, the government has confirmed.
UPDATE 2 - DWP publishes DB white paper: Stronger powers for TPR, DB chair statements to be introduced
The Pensions Regulator (TPR) will be given the power to fine company bosses who deliberately puts their defined benefit (DB) schemes at risk, the government has confirmed.