Pension Plan Funding Relief

Many employers, including nonprofit organizations, that sponsor defined benefit pension plans will soon be required to make large catch-up contributions into their pension funds due to the decline in the financial markets at the end of 2008 and new pension funding rules that require the losses to be repaid within seven years. Congress is considering providing temporary relief in order to permit these employers to stretch out the cost of the unexpected losses. Without this relief, nonprofits that sponsor defined benefit plans will be forced to pay off the losses by shifting substantial financial resources away from vital community services.

A defined benefit plan requires an employer to fund pension obligations in advance and typically provides a pre-determined annuity to employees when they retire. These plans differ from defined contribution plans, such as 403(b) retirement savings plans, in which the employer makes contributions each year, but does not promise a specific retirement benefit.

Status
Representatives Earl Pomeroy (D-ND) and Pat Tiberi (R-OH) introduced the Preserve Benefits and Jobs Act (HR 3936) (PDF) October 27 that would provide temporary pension funding relief that would allow sponsors of single-employer plans to choose between two ways to repay the pension investment losses those plans suffered at the end of 2008. The employers could stretch out their amortization payments over nine years instead of seven required by current law, and make interest-only payments in the first two years. In the alternative, they could choose to make level payments for a 15-year period. Employers electing to take the relief would be required to meet one of three maintenance of effort options: continuing existing benefits, providing a defined contribution benefit for individuals excluded from the pension plan, or restricting executive (nonqualified deferred) compensation.

• See a section-by-section summary of the Pomeroy-Tiberi bill (PDF) prepared by the bill sponsors.

Independent Sector issued a statement calling on Congress to enact temporary pension relief and filed a statement (PDF) at a House Ways and Means Committee hearing on the issue. IS member the Center for Civil Society Studies at Johns Hopkins University released on November 5 a Listening Post survey (PDF) finding that that many nonprofit organizations with defined benefit plans “are having to divert resources from their program operations to their pension plans at a time when needs are growing and resources are shrinking.”

Take Action
Here are specific things you can do to help secure pension funding relief:

1. Contact Congress: Write your senators and representatives and ask them to enact temporary pension funding relief to prevent nonprofits from having to shift substantial financial resources away from vital community services. Review the pension relief talking points and add information about your organization to the sample letter provided. Locate contact information for your Senators and Representatives on the respective websites.

2. Contact Independent Sector: We encourage nonprofit organizations to let us if you sponsor a defined benefit pension plan and want to be contacted about advocacy on this issue. Please contact us at publicpolicy@independentsector.org.

Last Updated: January 5, 2010

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