ERIC memorandum template
ERIC Updates


<nobr>Feb 10, 2010</nobr>

Pension Funding Relief Included in Senate Democratic Jobs Bill

ERIC has been advocating the inclusion of funding relief provisions for defined benefit plans as a stimulus/job preservation/job creation measure for the past few months. We are pleased to report that the Senate Democrat's version of the job stimulus bill -- the "Hiring Incentives to Restore Employment Act" -- includes provisions related to funding relief.

Specifically, this bill would provide the following relief for funding requirements related to defined benefit plans for single employers (sections 701-703 of the bill):

Plan sponsors may elect one of two amortization schedules (note the bill does not include a more generous amortization schedule for "on-going" plans):

  • 2+7 amortization: the first two years of the nine-year amortization period would be interest-only (beginning in the elected eligible plan year (see below);

  • 15-year amortization;

  • Eligible plan years for relief: plan years beginning in 2008, 2009, 2010, or 2011;

  • Maintenance of effort: required minimum contributions under the 2+7 amortization or 15 year amortization schedule would be increased in cases of "excess compensation or extraordinary dividends or stock redemptions." Installment acceleration amount is the aggregate amount of excess employee compensation plus the aggregate amount of extraordinary dividends and redemptions:

    • Excess employee compensation: aggregate amount includible in income during the calendar year in which such plan year begins for services performed by the employee for the plan sponsor over $1 million (to be indexed for cost-of-living increases);

    • Amounts set aside for non-qualified deferred compensation: if, during any calendar year, assets are set aside or reserved (directly or indirectly) in trust (or other arrangement as determined by the Secretary of the Treasury) or transferred to a trust to pay deferred compensation under section 409A for a nonqualified deferred compensation plan, those assets will be treated as remuneration of the employee (recipient of the nonqualified deferred compensation) for that year (attributable to services performed after February 4, 2010);

    • Extraordinary dividends and redemptions: the aggregate amount of extraordinary dividends declared during the plan year by the plan sponsor and required to be reported under section 4043(c)(11) of ERISA plus the aggregate fair market share of any stock redeemed by the plan sponsor in any 12-month period ending during the plan year (equaling or exceeding 10% of the total voting power of all classes entitled to vote or an aggregate of 10% of the total value of shares of all classes of stock of the plan sponsor) only extraordinary dividends and redemptions declared after February 4, 2010, are applicable to this section of the bill.

Section 702 of the bill addresses the application of the legislation to extended amortization periods to plans subject to prior law funding rules (i.e., for plans with extended effective dates applicable to complying with funding rules under the Pension Protection Act of 2006).

Section 703 addresses a look-back for benefit accrual restrictions. For plan years beginning on or after October 1, 2008, and before October 1, 2010, the adjusted funding target attainment percentage of a plan will be the greater of: (1) such percentage as determined without regard to this section, or (2) the adjusted funding target attainment percentage for such plan for the plan year beginning after October 1, 2007, and before October 1, 2008, as determined under rules provided by the Treasury Secretary.

The bill also provides for situations where the valuation date is not the first day of the plan year (see section 703(a)). The bill is effective for plan years beginning on or after October 1, 2008.

It is important to note that the bill does not contain any requirement to continue the defined benefit plan for any period of time nor does it require any additional contributions to a plan sponsor's defined contribution plan. The bill also does not contain any additional section 4010 reporting to the PBGC.

The 362-page bill also includes:

  • An extension of expired tax provisions

  • An extension of the COBRA subsidy provisions

  • A short-term Medicare physician payment fix

  • Tax credits to encourage small businesses to hire employees and buy new equipment

  • An extension of unemployment benefits

  • Aid to state and local governments

Due to severe weather this week, governmental offices have been shut down in Washington, D.C since Monday, February 8th. Senate Majority Leader Harry Reid (D-NV) had indicated his intent last week to bring this bill to the Senate floor for a vote as early as Monday February 8th. It is unclear when this bill will be officially introduced and/or voted on by the Senate.

There has been some indication that leadership may hold weekend sessions to move legislation forward (including the jobs bill). At this time, the Senate announced that it will not be in session on Wednesday and will return on Thursday to consider the jobs bill. However, both weather impediments and disagreements about the scope of the jobs bill threaten to slow down legislative action on this issue.

Questions or comments on the legislation should be addressed to Kathryn Ricard (


Text Files:

Senate Jobs Bill

Back to Previous Page