Business Roundtable is an association of chief executive officers of leading U.S. companies working to promote a thriving economy and expanded opportunity for all Americans through sound public policy.
The members of Business Roundtable share your concern over America’s serious economic and financial crises. We appreciate the Administration’s efforts to promote a rapid recovery and get the economy moving again. Promoting policies that will help accelerate job creation and ensure economic stability in the markets is imperative. To help achieve these goals, one critical issue that must be addressed quickly is the need to provide temporary flexibility under the minimum pension funding rules. We urge you to aggressively pursue all available avenues for addressing this problem.
With dramatic declines in the markets beginning last year, more and more defined benefit retirement plans are confronting unexpected funding obligations – requirements that greatly exceed even the most conservative forecasts and budgets of a few months ago. For many pension plans, this impending pension funding crisis has been worsened by an unintended side effect of the federal government’s extraordinary and appropriate steps to drive down interest rates. Under the complex pension rules, these lower interest rates have the indirect yet immediate effect of further increasing the immediate funding obligations for retirement plans. When coupled with the continuing problems in the credit markets and general economic conditions, the challenges facing pension plans are serious.
Let me emphasize, this is much more than a cash flow issue. Without further action, corporate resources that must be devoted to meet the unexpected new funding mandates will have to be diverted from maintaining and expanding payrolls and will delay the business investments necessary to preserve jobs and ultimately spur the recovery. It is about jobs and about the economic recovery and will directly affect every American.
Dramatically larger pension contribution requirements during an economic downturn reduce capital spending and exaggerate economic cycles. “Procyclical” pension funding rules result in an economy that overheats more during upturns and has deeper recessions during downturns. That is precisely the economic threat we already face today — the expectation of large and unexpected pension contribution requirements is already dampening the economic recovery.
According to two recent independent actuarial estimates, plan sponsors will see a three-fold increase in required pension contributions for 2009. In this economy, that is a very dangerous burden to place on companies, and we urge you to explore all available regulatory and legislative avenues to help alleviate that milestone.
Business Roundtable member companies currently sponsor retirement plans benefiting millions of workers and retirees. We believe that pension plans must be prudently funded and do not believe that the current situation should be used as an excuse to undermine the important reforms enacted in the Pension Protection Act of 2006 (PPA) that we supported.
Pension promises that are made must be kept because the retirement security of millions of Americans is dependent on it. However, the PPA funding targets were established under market conditions very different from those we face today, when the global economy was running strong and stock markets stood near all-time highs. For that reason, we ask your support in helping to craft solutions that provide additional flexibility for pension plans to replenish recent market losses over a more fair and achievable timeline.
John J. Castellani