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Guest Article

(From the March 15, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Pension Funding Relief Passes Senate

With strong bipartisan support, on March 10 the Senate passed its version of a comprehensive jobs bill. The $140 billion bill, aimed at providing relief to workers, businesses and the states, also contains pension funding relief provisions similar to those proposed earlier by the Senate Finance Committee but with notable modifications. Plan sponsors now must wait for the House to act.

Last month the Senate Finance Committee proposed pension funding relief that would allow single employer pension plans to Elect an alternate "2 plus 7" or "15 year" amortization schedule for any two-plan years during the period from 2008 through 2011. However, plans electing this relief may be subject to increased funding installments if excess employee compensation (i.e., over $1 million) is paid, or in the case of extraordinary dividends and stock redemptions.

The Senate bill that passed on March 10 retained these key provisions, but made modifications to some of their critical finer aspects. These modifications include:

Excess compensation - In determining whether an employee receives excess compensation, the bill excludes commissions, and certain remuneration received under a contract in effect prior to March 1, 2010 (i.e., contracts for deferred compensation, restricted stock, stock options, and stock appreciation rights). Also excluded are grants of service recipient stock made after February 2010 if the stock is subject to a substantial risk of forfeiture for at least 5 years. The bill also provides for the $1 million cap to be indexed to the cost of living.
Extraordinary dividends and redemptions - Extraordinary dividends and redemptions are defined relative to the plan sponsor's adjusted net income for the prior year. The bill provides that adjusted net income is determined without regard to any reduction for interest, taxes, depreciation or amortization (i.e., EBITDA).
Application of conditions - The restrictions on employee compensation, dividends and redemptions would apply for three years under the "2 plus 7" amortization schedule, and for five years under "15 year" amortization schedule. These periods are greatly reduced from those originally proposed: nine years and fifteen years, respectively.
Mergers and acquisitions - The Treasury department is to issue regulations on how the restrictions are to apply in the context of corporate mergers and acquisitions.

Under the Senate bill, the funding relief would not be limited to active plans, but would be available only for contributions that are due after the date the legislation is ultimately enacted. The House now needs to act. Observers predict the imposition of a fee disclosure requirement or possibly an active plan requirement (i.e., ongoing accruals) by the House. These and other changes are a possibility before the bill is enacted into law.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact:

Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.