By unanimous consent, the Senate yesterday passed H.R. 7327, modifying the Pension Protection Act of 2006 to react to the current economic downturn. Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, explained the importance of the legislation in a floor statement:

I wish to say this is very important relief for seniors and for the country. The bill includes a provision that would allow seniors who are 701⁄2 years of age not to have to make withdrawals from their IRA accounts that the current law requires. Under current law, if you are 701⁄2 or older, you must begin to withdraw significant amounts from your 401(k) accounts or IRA accounts and if you don’t, you pay a big penalty. At these times it is not wise to require that, because the accounts are lower in value and they should not have to make those withdrawals if they don’t want to.

In addition, this legislation would allow companies to postpone making increased contributions to their pension plans also required by the recent pension law. When we revised pension law a short while ago, we were pretty strict to protect employees by requiring companies to make contributions to the pension plans at a much faster rate. That made sense then, but given the economic downturn, with the market values down so much lower than they were back then, it makes sense, I believe—and I think most Senators agree—that those contributions should be postponed or later modified in order to keep companies viable.

A lot of companies need this to meet payrolls in these difficult times, and this will prevent them having to freeze their benefits.

The NAM and more than 400 other businesses, associations and others wrote a letter to Congress this week asking for relief on the pension mandates. We stress that the legislation in no way undermines the basic legislation, the Pension Protection Act of 2006. It is just a useful, necessary, helpful, etc., modification that reflects the new economic circumstances.

UPDATE (10:10 a.m.): For the full floor statement by Senator Baucus, go here.

AP reports, “Congress acts to provide relief for pension funds“:

WASHINGTON (AP) — Congress is moving to relieve businesses of paying billions of dollars in required contributions to their pension plans in the coming year, cash that the companies say they need to stay afloat in a worsening recession.

The legislation, which could reach the president’s desk this week, has been a priority of business groups that contend that some companies will have to freeze pension plans, lay off workers or even go bankrupt without the relief.

Many businesses with defined-benefit plans have been staggered by the double blow of meeting requirements under a 2006 law that they fully fund their plans at the same time the value of the plans has been eaten up by declines in the markets where the pension funds are invested.

“The drop in the value of pension plan assets coupled with the current credit crunch has placed plan sponsors in an untenable position,” business groups, including the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers, wrote lawmakers.

The text of the NAM’s letter to the House is available here. The text of the legislation is here. It appears the Senate debate will begin shortly.

5:30 p.m. – Debate starting.

The House last evening passed H.R. 7327, making some technical corrections to the Pension Protection Act. Modest smoothing allowed.

From US News:

The bill also includes temporary funding relief for companies with employer-sponsored pension plans that would otherwise be forced to make higher contributions when they are short on cash. “While we remain fully and unequivocally committed to the notion that businesses and unions must fully fund their pension obligations to their workers, the small step we’re taking today will provide much-needed relief to participants, plan sponsors, and beneficiaries in the short term, potentially staving off job cuts, benefit reductions, or financial burdens that would be far more harmful to workers and retirees in the long term,” says U.S. Rep. Howard McKeon (R-CA), a member of the Education and Labor Committee.

Provisions of the Pension Protection Act of 2006 currently require companies to raise their funding for pension plans from 90 percent to 100 percent over seven years. The target funding levels are 92 percent for 2008 and 94 percent for 2009, under current law. If companies don’t meet that benchmark, they are forced to fully fund their pensions immediately. The bill would allow companies that fail to meet the 92 percent target this year to only have to come up with the cash to reach 92 percent, not 100 percent.

The action acknowledges the validity of arguments made for pension relief by the NAM and businesses, as summarized in recent letters to the Hill.

Senate action still needed.

A letter to the Senate and House sent yesterday afternoon, advocating changes in implementation of the Pension Protection Act of 2006. The issue:

The drop in the value of pension plan assets coupled with the current credit crunch has placed defined benefit plan sponsors in an untenable position. No one who drafted the recently enacted defined benefit plan funding rules anticipated the worst financial crisis since the Great Depression and a once in a hundred years “credit tsunami.” Yet, at a time when companies desperately need cash to keep their businesses afloat, the new funding rules will also require huge, countercyclical contributions to their pension plans. Consequently, many companies will divert cash needed for current job retention, job creation and needed business investments, and instead contribute the cash to their pension plans to fund long-term obligations due many years after the current market conditions return to normal. We do not believe that, in enacting the Pension Protection Act of 2006 (“PPA”), Congress intended companies to be forced to make this kind of decision. Unless the funding rules are modified, they will cause an increase in unemployment and slow economic recovery. 

The letter is signed by more than 400 businesses, trade associations and unions.

From CQ Politics: “Pension Relief Bill Still Caught in House-Senate Stalemate”

The prospects remain murky for passage this year of comprehensive legislation to ease pension-funding rules, as House Democrats resist a bipartisan Senate bill that would offer relief to businesses and individuals alike…[snip]Under the 2006 pension law overhaul, companies with defined-benefit plans that aren’t fully funded must begin meeting that goal soon. But the 2008 stock-market plunge has decimated many pension plans, and corporations argue that meeting the law’s requirements would consume so much money it would prevent them from hiring and investing. The National Association of Manufacturers has cited a recent report that companies will have to increase their pension contributions by $90 billion in 2009.

The dispute between chambers centers on treatment of tribal pension funds. While important to the Indian tribes and their members, is that really the kind of issue that should hold up legislative changes that could free up billions in private capital for investment NOW? Clarification: We’re now told on good authority that while it’s an issue, the tribal pension plans are not really a sticking point.

In November, the NAM and many other associations, businesses and labor groups sent the members of the House Ways & Means Committee a letter outlining the negative effects the financial crisis was having on pension plans and laying out reasonable steps to ease the serious problems. Excerpt (and PPA refers to the Pension Protection Act of 2006):

We are in no way advocating an overhaul of the PPA funding changes. Rather, we urge Congress to consider making technical corrections to the PPA, that we believe implement Congressional intent, and adopting temporary provisions that deal with the financial crisis. Such provisions should include permitting full smoothing of unexpected losses, removing restrictions on asset smoothing, allowing sufficient time to transition to the PPA’s 100% funded target, providing automatic IRS approval for certain funding elections to keep plans viable, clarifying end-of-year valuations, and permitting fixed interest rates to be used for Code section 415 limit purposes so as to avoid benefit reductions.

You can read the entire letter here.