Congress Mulls Allowing Pensions to Remain Unfunded Longer

(November 5, 2009) – A bill has been introduced in the U.S. House of Representatives that would extend the time that underfunded pension systems have to top up their retirement plans.

The bill, introduced by Rep. Earl Pomeroy (D-North Dakota) and Rep. Pat Tiberi (R-Ohio), would give struggling companies more time to contribute to employee pension plans. Currently, employers have seven years to make up funding shortfalls; if the new bill eventually passes, this would increase to nine years, with the government requiring only minimal payments from plan sponsors in the first two years. If an employer agreed not to freeze its defined benefit plan, the company would have 15 years to fund.

The seven-year plan was passed in Congress just three years ago, in 2006.

This would have the likely effect of freeing up cash for new investments and hires; it could, however, also increase the burden on the public purse if many companies entered bankruptcy with lower funding levels in their pension plans, overwhelming the Pension Benefit Guarantee Corporation.

At least one Senator—Michael Enzi of Wyoming—has expressed initial support for such a move. “If we could have foreseen in 2006 the steep stock market decline coming around the bend, then there is little doubt that we would have incorporated greater flexibility in the funding rules,” he said late last week in response to hearings on the subject in Washington, according to The New York Times.