Letter in Support of Pension Funding Stabilization
and Opposing PBGC Premium Increases

Please join the Pension Coalition in urging Congress to take immediate action to stabilize funding requirements for private-sector pension plans impacted by today's extraordinarily low interest rate environment.

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May xx, 2012

TO THE MEMBERS OF THE UNITED STATES CONGRESS:

Create Jobs, Increase Investment, Strengthen Pensions, and Raise Revenue
by
Stabilizing the Pension Funding Interest Rate Rules

The undersigned organizations, which represent thousands of pension plans providing retirement benefits to millions of workers and retirees, urge immediate Congressional action to stabilize funding interest rate rules for private-sector pension plans. Without legislation to adjust for current economic conditions, the current plan funding regime will undermine job retention and growth and limit companies' ability to invest in capital improvements needed to be competitive worldwide and to maintain the economic recovery here at home. Moreover, failure to address on-going funding issues will threaten the long-term retirement security of workers and retirees.

Annual funding obligations for pension plans are based on a conservative measure of corporate bond interest rates. Unfortunately, current rules do not contemplate the sustained steps the federal government has taken in recent years to hold down interest rates to spur economic growth. In fact, the Fed restated on April 25, 2012 that economic conditions are "likely to warrant exceptionally low levels for the federal funds rate at least through late 2014." These government-promoted artificially low interest rates translate into very high estimates of pension liability, which now have resulted in immediate, excessive, and unnecessary required pension contributions.

Consequently, targeted changes to the funding rules that appropriately reflect periods of abnormally low or extremely high interest rates are needed to remove the distortions caused by today's extraordinary interest rate environment. To this end, we urge you to support a permanent rule that disregards interest rates for any period to the extent that the rate for that period is not within 10 percent of the 25-year average interest rate. The Senate-passed highway bill (H.R. 4348) included this "25/10" structure, but only for the 2012 plan year (with a partial phase-out thereafter). We support that provision in the context of the highway legislation, but urge you to continue to consider a broader and permanent rule based on the 25/10 structure. In addition, we also support other similar approaches, like lengthening the period for amortizing plan liabilities, that are consistent with the long term nature of pensions themselves.

Without these recommended changes, funding requirements in the near-term will be far greater than necessary to meet long-term pension obligations, creating significant economic inefficiencies and forcing employers to divert important resources to fulfill an artificial obligation. These excessive, unnecessary and unpredictable required pension contributions will impact a wide range of organizations including companies that will be forced to delay hiring and capital expenditures and charitable organizations that will see critical resources diverted from their charitable missions. In contrast, a permanent funding stabilization proposal will help keep Americans employed, will improve the economy, and will also generate additional funds for the Treasury by reducing unwarranted contributions to pension plans. The short-term provision in the Senate-passed highway bill would raise about $10 billion, and a permanent rule would raise more.

Pension funding stabilization will not lead to greater underfunding or jeopardize the solvency of the Pension Benefit Guaranty Corporation (PBGC). A pension plan’s ability to pay benefits over the next 50 or more years is unrelated to the fact that the government is temporarily working to keep interest rates artificially low. The PBGC stated in a recent annual report: “[s]ince our obligations are paid out over decades, we have more than sufficient funds to pay benefits for the foreseeable future.” PBGC only suffers losses if a plan sponsor goes bankrupt and terminates its plans. Because funding stabilization will reduce bankruptcies, there is, as CBO has previously concluded, no evidence that reducing funding obligations during a recession increases claims against PBGC.

At the same time, we oppose efforts to raise revenue through increases in PBGC premiums. Stabilizing interest rates in the funding rules is a fiscally sound policy that raises revenue and improves retirement security, as opposed to increases in PBGC premiums, which are unnecessary and counterproductive. A recent study has shown that the PBGC’s reported deficit is substantially a product of the very same artificially low interest rates that the 25/10 proposal would address. In this context, raising premiums by billions of dollars does not serve a policy purpose, but rather only diverts money away from jobs and economic recovery.

Thank you in advance for your support for this important effort. We look forward to working with you and your staff to advance legislation that will promote our nation’s economic recovery and reinvestment, while securing sound long-term pension plan funding.

Sincerely,

[Companies and associations in alphabetical order]