With pension funds facing billions of dollars in shortfalls as markets plunge, a range of companies from Ford to Verizon are pushing Congress to suspend portions of a 2-year-old law they say could force them to make job cuts as they shift scarce money into ailing retirement pools.
The lobbying effort aims to change a 2006 pension reform law as part of any economic stimulus plan in a lame-duck session of Congress that begins next week. Companies warn the current law could force them to tie up large sums of cash they desperately need in the face of a global recession.
About 300 companies and business groups plan to make the request in a letter today to congressional committees. The authors include some of the nation's biggest corporate names from a wide range of sectors, including Ford Motor Co., IBM Corp., Pfizer Inc. and Verizon Communications Inc.
“Unless the funding rules are modified, they will increase U.S. unemployment and slow our economic recovery,” the letter warns.
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The Pension Protection Act of 2006 included provisions meant to ensure that company pensions, also known as defined benefits, have money to meet the promises made to workers and retirees. Many companies have phased out such pools of money in favor of 401(k) plans, which cost less. Still, about three-quarters of S&P 500 companies have traditional plans, analysts say.
Under the law, companies facing shortfalls must bring their plans up to full funding over the next seven years. Those that fall short will be forced to take steps such as freezing the accrual of new benefits for current plan members.
The letter asks Congress for changes to the pension reform law, such as giving companies more time to reach full funding. It also seeks accounting changes that would allow companies to spread losses to their plans over longer periods of time, a process that would temper the effect of sudden drops in plan values.
With many plans heavily invested in equities, the recent drop in the market, which saw the S&P 500 index fall about 35 percent in a year, has caused steep pension losses. A report earlier this month by the Center for Retirement Research at Boston College estimated that equities held by private defined benefit plans lost nearly $1 trillion in value in the year that ended Oct. 9. The same study estimates companies will have to raise contributions to their plans by at least $90 billion next year because of the drop.
Defense contractors such as Lockheed Martin Corp. and Northrop Grumman Corp. have reported big losses to their funds, and some Wall Street analysts warn that defense firms face up to 25 percent underfunding because of the market woes.
Steel companies, already hammered by a free fall in steel prices, face similar shortfalls, with an analyst predicting last week that United States Steel Corp. could face a $2.2 billion funding shortfall next year. Elsewhere, aircraft maker Boeing Co. said in late October that its pension plan was down 20 percent on the year and raised its expected 2009 pension expense by $100 million. Both companies signed the letter to the House Ways and Means Committee.
“Bringing the plans to legally required funding levels over the mandated seven-year period could require annual cash outlays in the millions,” wrote J.P. Morgan defense industry analyst Joseph Nadol III in a note to investors last month.
Pension plans commonly provide workers with a guaranteed annuity when they retire.
The Senate Health, Education, Labor and Pensions Committee and others are expected to hold hearings on the private sector request, but it remains unclear how much support there is in Congress for such a change.
And the need for reform may not be immediate. Under the law, many companies won't have to start putting cash into their plans to raise funding levels until at least September, giving the market and pension plan values time to recover from the recent big drops. However, pension plans facing deeper losses must start kicking in money beginning in April.