The American Benefits Council applauded the final passage by the Senate on Wednesday of The Highway Investment, Job Creation and Economic Growth Act, S. 1813, as the bill includes a provision that provides pension funding relief to companies.
An earlier version of the legislation contained a provision that would have limited tax-deferred stretches of IRAs for beneficiaries, but was removed by Senate Majority Leader Harry Reid, D-Nev.; Sen. Jon Kyl, R-Ariz.; and Sen. Max Baucus, D-Mont.
Section 40312 of S. 1813 allows companies to use a “more historically accurate interest rate for the purposes of calculating pension assets and liabilities,” according to James Klein, president of ABC. “The final language, which closely follows the council’s proposal offered in October 2011, recognizes the long-term nature of pensions and makes pension plan funding less volatile.”
Klein went on to say that “pension policy can be exceedingly complicated,” but the enactment of the “funding stabilization provision makes perfect sense” because “it smoothes out a company’s funding obligation so it is less sensitive to abnormally high or low interest rates that distort a plans financial condition either too positively or too negatively.” This measure, he continued, “saves jobs and raises federal revenue while preserving valuable retirement coverage for millions of American workers.”
Klein said ABC is calling on members of the House of Representatives to join the bipartisan effort “by enacting this measure as soon as possible.”
The Federal Reserve, Klein notes, “is intentionally” keeping interest rates at historically low levels to help stimulate economic recovery, and expects to continue doing so until at least 2014. “These artificially low interest rates make healthy pension funds appear less well funded than they truly are, triggering abnormally high pension liabilities. This, in turn, sends mandatory employer contributions to defined benefit plans soaring–greatly limiting companies’ ability to invest in jobs and other capital improvements,” he said. “For many months, the council has been working with Congress to resolve this little-acknowledged but exceedingly important problem.”