While the Worker, Retiree and Employer Recovery Act (WRERA) enacted in December was a step toward better predictability of pension funding obligations on a long-term basis, it is not enough to sustain retirement security, according to global human resources consulting and outsourcing firm Hewitt Associates.
Evidence is everywhere of companies having to slash salaries, reduce benefit levels, including increasing employees’ share of health care costs and eliminate 401(k) matches. Many have been forced to lower compensation budgets and cut their workforce. According to Hewitt, the job-loss trend may be accelerated for companies with pension plans–who have seen average pension fund losses of approximately 27 percent over the past 12 months–if they are forced to allocate what little capital they may have left to fund the substantial and rapidly rising increase in cash contributions needed to meet the current funding requirements under the 2006 Pension Protection Act (PPA), even following the passage of WRERA.
Hewitt insists additional pension funding relief is necessary and should come as part of the upcoming economic stimulus package.
“Further pension funding relief is not about asking for a ‘bailout;’ it’s about companies requesting additional time to manage their contribution obligations and avoid the extreme steps they may be forced to take in order to sustain their business during the current economic climate,” said Rick Jones, chief actuary for Hewitt’s Retirement and Financial Management practice. “We need to quickly pass additional legislation that helps ease the significant burden of funding requirements on pension plan sponsors, helping to mitigate the risk of further job losses and benefit cutbacks for the millions of Americans who are already facing declining retirement balances, higher benefit costs and lower salaries.”
A brief highlight of Hewitt Associates’ Trends and Experience in 401(k) plan (2007) can be obtained here.