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Letter to Chairman Max Baucus on Pensions

The Honorable Max Baucus
United States Senate
Chairman, Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Baucus:

Thank you for your ongoing leadership on retirement issues and, in particular, for your extraordinary efforts at the end of last year that led to the enactment of important temporary relief from the pension funding rules that was necessitated by the economic downturn. The changes you spearheaded were a critical first step that helped many companies and charities deal with the economic problems they face and helped preserve jobs.

Unfortunately, pension plans have now been hit by yet another blow that could not have been predicted. The Federal government has taken extraordinary steps to drive down interest rates in order to get the economy moving again. We commend those appropriate actions. But, 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 even worse than we thought at the end of last year.

More and more plan sponsors are confronting unexpected funding obligations that greatly exceed even their most conservative forecasts and budgets of a few months ago. Without further action by Congress, resources that must be devoted to meet the unexpected new funding mandates will have to be diverted from maintaining payrolls and will delay the business investments necessary to preserve jobs and ultimately spur the recovery.

Let me re-emphasize, this is much more than a cash flow issue. 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 John J. Castellani .

That is precisely the economic threat we face today — large and unexpected pension contribution requirements will dampen the economic recovery and lead directly to greater job loss from the current recession. According to two recent independent actuarial estimates, plan sponsors will be required to make pension contributions for 2009 that are approximately double what was required for last year (even with the helpful provisions you helped enact in December of 2008). In this economy, that is a very dangerous burden to place on companies.

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).

Pension promises that are made must be kept because the retirement security of millions of Americans is dependent on it. But 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 that you once again take the lead in enacting carefully targeted solutions that provide additional time for pension plans to replenish recent market losses over a more fair and achievable timeline.

Sincerely,

John J. Castellani
 

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