There is no question that maintaining a traditional defined benefit pension plan comes with significant complexity and costs for the manufacturers that sponsor these plans. We have written before about the millions of dollars manufacturers must pay the Pension Benefit Guaranty Corporation (PBGC) in the form of premiums, but manufacturers are also running up against further costs as a result of the PBGC’s interpretation of an existing pension law.
Under Section 4062(e) of the Employee Retirement Income Security Act (ERISA), companies with traditional pension plans must notify the PBGC when they cease operations at a facility and 20 percent of employees in the pension plan are separated from employment. The PBGC then determines if the company is liable for providing financial security to the pension plan. Unfortunately, the PBGC has been interpreting the law in an overly broad manner and undertaking enforcement measures even if it is not clear that a 4062(e) triggering event occurred.
As a result, manufacturers are holding off on making important changes to their business operations, such as closing a plant in an inconvenient location and moving employees to another location, because the liability requirement can force the company to sideline millions of dollars away from productive business investments.
The NAM met with the PBGC twice this year as well as the Department of Commerce to voice the concerns we have heard from manufacturers facing 4062(e) liability. Soon after these meetings, the PBGC announced that they would place a moratorium on their enforcement of 4062(e) until the end of 2014.
While the moratorium is a positive first step, manufacturers need the certainty of a permanent solution. To that end, Senators Tom Harkin (D- IA) and Lamar Alexander (R-TN) introduced legislation (S. 2511) to clarify the definition of substantial cessation of operations contained in Section 4062(e) so that manufacturers will know exactly what type of changes to business operations will trigger liability.
The NAM wrote a letter supporting the Harkin-Alexander bill, which was approved by the Senate Committee on Health, Education, Labor, and Pensions Committee today by voice vote, and urges the Senate and House to pass S. 2511 as soon as possible.