President Obama has signed legislation that aims to help pension plans cope with losses they sustained when financial markets tumbled in 2008 and 2009.
Lawmakers removed the pension provisions from a package of tax-break extensions and attached them to a measure that temporarily cancels a looming cut in Medicare payments to physicians.
The Medicare-pensions measure gained final congressional approval when the House passed it on June 24. Obama signed the bill the following day.
The measure has relief for single-employer and multi-employer, defined-benefit plans.
For multi-employer plans, which affect unionized workers and employers in construction and certain other industries, enactment of the bill is a positive step, says Dana Thompson, the Sheet Metal and Air Conditioning Contractors National Association's assistant director of legislative affairs.
Thompson says, "I think it's definitely important to all the plans that we got this done." One key provision of the legislation allows multi-employer plans to spread investment losses from 2008 and 2009 over a period of 30 years, compared with the previous standard of 15 years.
In addition, for purposes of solvency tests, multi-employer plans can "smooth" the differences between expected and actual returns on investments from the tough 2008 and 2009 years evenly over 10 years. The previous smoothing period was five years.
SMACNA's Thompson says that smoothing out the hit over the longer period could allow multi-employer plans to avoid having to move into the "critical" category because of sharp losses in one or two years.
Employers supporting multiemployer plans in critically underfunded status would have to increase their contributions or cut benefits--or both--to move the plans out of that critical, or "red," zone.
Assistant Labor Secretary Phyllis Borzi recently testified before a Senate committee that for 2010, 30% of multiemployer, calendar-year plans were in the "red" category, up from 7% in 2008.
But Thompson says that the final version of the legislation "left a few things up in the air," which will require regulations to be written by the agencies such as the Internal Revenue Service.
One reason why the pension provisions were shifted to the Medicare bill is that they are estimated to raise revenue over the next 10 years, thus offsetting some of the cost of the Medicare reimbursements.
James A. Klein, president of the the American Benefits Council, said, "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."