<nobr>Apr 19, 2010</nobr>

Labor Secretary Says Administration Supports DB Funding Relief

Assistant Secretary Phyllis Borzi Also Releases Statement in Support of Relief

Secretary of Labor Hilda Solis on April 13 wrote to the chairs of the House Education and Labor Committee and the Ways and Means Committee, saying that the Obama Administration supports pension funding relief legislation.

In particular, Solis said that the "Administration supports targeted legislation that allows plan sponsors to temporarily delay pension contributions resulting from [recent investment losses and current low interest rates], giving them more time to make up these extraordinary losses while requiring the same funding levels by the end of a defined period."

Solis' letter also details four principles that should be "codified" in any legislation addressing pending funding relief:

• Funding relief should allow companies to protect jobs and increase investment;


• Cash not needed for these purposes should be put into pension plans before it is distributed to shareholders or spent on executive compensation;


• If a company chooses funding relief, it should be required to disclose this fact to participants (as well as the impact on plan funding during this period); and


• Legislation should not provide funding relief to companies that are unlikely to be able to meet their pension obligations in the future because of severe financial distress (such as those in bankruptcy).

The letter also includes a reference to the need for more transparency regarding fees charged by service providers. Secretary Solis notes in the letter that the Department of Labor is currently in the process of developing multiple regulations to address this issue. Secretary Solis signed the letter in her capacity as Chair of the Board of Directors of the Pension Benefit Guaranty Corporation.

It appears that the Administration is supporting the Senate-passed bill H.R. 4213, the American Workers, State, and Business Act of 2010. This legislation would permit plan sponsors to choose an extended amortization period of either nine years (2+7 years with the first two years requiring plans to pay interest only on their obligations) or 15 years. In exchange for the extended amortization period, employers would be required to pay a dollar-for-dollar contribution to the plan for extraordinary dividends, redemptions up to a certain amount and for excess compensation paid to employees of over $1 million. These conditions would continue for three years under the 2+7 amortization period and for 5 years under the 15-year amortization period.

The one principle cited in the Administration's letter that is a new proposal is that companies that choose the funding relief for their pension plans would be required to disclose the impact of the relief on participants. It is unclear what this disclosure would entail, however.

The good news is that the Administration has determined that defined benefit funding relief is necessary and important and should be done in the near future. One issue that Democrats had raised in the past is that the Administration had not weighed in regarding this issue. This letter outlines the Administration's position on the issue.

Questions or comments on this legislation should be addressed to Kathryn Ricard, kricard@eric.org.

Secretary of Labor Pension Funding Letter

Statement by EBSA Assistant Secretary Phyllis Borzi

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