March 23, 2020
Last week, in a throwaway line in an article on multiemployer pensions, I considered it something of a given that, following a script similar to the 2008 crisis, Congress would provide “funding relief” to single-employer pension plan sponsors, allowing them to defer contributions to their pension plans which would otherwise be substantially elevated, and that it was multiemployer plans, with their pre-existing funding challenges, that faced greater difficulties.
Unfortunately, that isn’t quite right. Single-employer plans are facing their own challenges that are far more significant than in 2008, and it’s not a sure thing that they’ll get this relief in time.
Last week Wednesday, the pension consulting firm Mercer sent letters to Chairman Richard Neal and Ranking Member Kevin Means, and Chairman Chuck Grassley and Ranking Member Ron Wyden of the Senate Finance Committee, calling their attention to the issues these pension plans’ corporate sponsors would face without legislation. According to the letter,
“Under the current funding rules, implemented by the Pension Protection Act of 2006, most corporate plans are sufficiently funded to pay participants their benefits for at least several years without any additional cash infusions. But those rules will still require many employers to make contributions to their pension plans at a time when cash is critically needed elsewhere.”
Mercer therefore called on Congress to implement the following changes quickly:
In addition, in the longer-term, and to a greater or lesser degree depending on whether or to what extent the market recovers before their next actuarial valuation comes due, companies will need more traditional forms of “funding relief.” If this isn’t enacted, their required contributions would balloon in order to pay off the pension underfunding due to the market crash as well as lower-than-low interest rates. Here Mercer calls for two tehnical boosts o the required valuation interest rates to lighten the burden.
Earlier today I spoke to Martine Ferland, Mercer’s President and CEO, and Bruce Cadenhead, Mercer’s Global Chief Actuary, to gain more insight into the situation.
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