New IRS DB Funding Rules

The Internal Revenue Service (IRS) recently issued regulatory guidance on defined benefit pension plans that provides some needed relief for DB plan sponsors. Citing the March 2009 edition of the IRS Employee Plan News, the American Benefits Council (ABC) says the guidance “allows companies to uses the spot yield curve (used for measuring pension assets and liabilities) for 2009 without regard to what they used in prior years and clarifies that the yield curve can be used for any ‘applicable month’ rather than the month preceding the plan year (as had previously been suggested in proposed regulations).” These rules, ABC says, now conform to the funding procedures required under the Pension Protection Act of 2006. At a time when many sponsors are facing huge funding obligations as a result of the economic downturn, this IRS guidance is welcome news, said James Klein, ABC’s president, in a prepared statement. Klein said that in the short run, “this guidance will allow many employer plan sponsors to more reasonably measure the value of their pension plan liabilities into the future while continuing to ensure that these plans will be fully funded and provide all promised benefits.” In the longer view, Klein continued, “additional guidance and legislation are still critically needed to prevent this pension funding crisis from causing more job loss, slowing growth and hindering economic recovery.”