The Government’s Role in the Pension System
they can.” In fact, PPA funding rules
accelerated the contributions sponsors
were required to make in an attempt to
shore up the funding of pension plans,
taking pressure off the PBGC. Again,
the government recognized a gap in the
system and implemented a new framework
to address the immediate concerns of
plan participants while holding plan
sponsors accountable.
The timing of PPA was unfortunate. Just
as plan sponsors’ funding requirements
were picking up, the market and interest
rates were backing down – causing a
“perfect storm.” In response to pleas from
plan sponsors, the government stepped
in again and offered temporary funding
relief – most notably in 2012 with the
signing of the act known as MAP-21, or
Moving Ahead for Progress in the 21st
Century. From the sponsor’s perspective,
it reduced immediate cash requirements
by as much as 50% or more in 2012, with
sustained assistance through 2016. From
the government’s perspective, it again
increased tax revenue by significantly
reducing deductible contributions. But
what did it do for participants?
A few weeks ago, an extension of MAP21 was introduced by the House which
would further reduce the contribution
requirements through 2018 and beyond.
In an April 17, 2014 letter from the
American Academy of Actuaries (AAA)
to the leaders of the House and Senate,
the AAA Pension Finance Task Force
writes, “The amount of benefits paid to
plan participants would not be changed
by these legislative proposals, but the
security of promised benefits may be
reduced. Lower contribution requirements
will very likely result in lower plan assets,
providing less security for participants
and increasing risk for the Pension Benefit
Guaranty Corporation (PBGC). “
There is no doubt that without government
intervention, many more plans would
have wound up in the hands of the PBGC
– likely resulting in reduced benefits to
participants. But delaying contributions
also puts these plans at risk. While the
government’s involvement provides
relief to companies in the most dire of
situations, sponsors need to consider
their responsibility in the future of these
plans. Let’s fund these promises as soon
as we can. n
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