If wisdom is a powerful thing, conventional wisdom is often more so because it carries the perception of unanimity. Sometimes, the conventional wisdom is even true.
Today's conventional wisdom suggests that Congress, currently preoccupied with economic recovery efforts, generally, and matters related to financial institutions, specifically, will be too distracted to enact critical defined benefit pension plan funding relief made necessary by a combination of the new funding regime under the Pension Protection Act of 2006 and the steep decline in the stock market.
There is evidence to support this view. Dating back to the 2008 election campaigns, notwithstanding the obvious harbingers of economic upheaval, defined benefit retirement issues have not been a top priority for President Obama or either party in Congress. Retirement policy efforts have focused more intensely on defined contribution plan matters, which are more visibly linked to the market downturn. To this end, President Obama has proposed legislation to automatically enroll workers in their defined contribution plans, where available, and automatic-IRA enrollment for those employed by companies not sponsoring a plan. Additionally, key committees have held hearings on lingering 2008 issues like 401(k) plan fees and investment advice, as well as the strength of the defined contribution system overall.
In the view of some lawmakers, new defined benefit pension relief measures are unnecessary. The Worker, Retiree and Employer Relief Act, enacted in December 2008, included some limited defined benefit plan funding relief by clarifying that plans may "smooth out" unexpected asset gains and losses over 24 months. This measure also eased the transition to the PPA funding rules, allowing plans at and below the phased-in funding threshold to receive transition relief (i.e. eliminating the so-called "cliff" effect, under which the transition relief was only available to plans at or above the phase-in level.) For defined contribution plans and IRAs, WRERA waived the minimum required distribution rules for 2009. Many policymakers, particularly officials at the Pension Benefit Guaranty Corp., have asserted that the WRERA relief is sufficient and no additional measures should be considered.
More informally, but no less important, is the simple matter of "pension fatigue." After the grueling debate in 2005-2006 over the PPA, many members of Congress and their staff are just not interested in revisiting the topic. Ironically, the Emergency Economic Stabilization Act of 2008 enacted last fall and further economic stimulus measures since then were intended to inject more liquidity into the credit markets and make it easier for employers to borrow the money needed to invest and grow. But the onerous pension funding burdens are making it more difficult for those same companies to borrow money when financial institutions are reluctant to lend in light of those new pension funding requirements.
Perhaps lawmakers will see that the value of defined benefit plan relief trumps the conventional wisdom. Despite WRERA relief, and imminent administrative relief expected from the Treasury Department as of press time for this column, many employer plan sponsors continue to face unprecedented funding pressure in the face of falling corporate bond interest rates and tight credit markets. These obligations threaten jobs and economic recovery.
Furthermore, the increased concern in Congress regarding declining defined contribution account balances could spur more attention on retirement policy matters generally. Some employers have been financially compelled to respond to pension funding requirements, by reducing or suspending altogether their contributions to 401(k) plans. Already, House Republicans have developed the Savings Recovery Act, legislation that serves as a platform for retirement savings issues. This measure proposes incentives for contributions to workplace retirement plans, and includes some of the additional funding relief advocated by the American Benefits Council and other plan sponsor groups.
Federal revenue cost could also play a decisive role. But unlike virtually all other aspects of economic stimulus, pension funding relief essentially acts as a federal revenue-raiser: smaller pension plan contributions means lower employer tax deductions. In a notionally "pay-as-you-go" budget environment, the ability to limit revenue loss is strong currency.
The ongoing course of economic recovery efforts -- to say nothing of the forthcoming health care reform debate -- will largely dictate the course of just about every other legislative initiative including defined benefit funding relief. Achieving relief might rest on the establishment of new conventional wisdom: pension funding relief is directly related to, and absolutely essential for, broader economic recovery.
James A. Klein can be reached via e-mail at info@abcstaff.org.
