Tuesday, December 16, 2008
Pension Plan Funding Relief passes both houses of Congress
Both houses of Congress have passed the Pension Plan Funding Relief Act of 2008 (also called the Worker, Retiree and Recovery Act of 2008, HR 7327, here). The law will reduce penalties for premature withdrawals from IRAs and 401Ks during 2009, and will relax the funding requirements for pension fund sponsors. The earlier concern was that stricter accounting standards could push some defined benefit pension plans into default and place greater strain on the Pension Benefit Guaranty Corporation (PBGC).
The Society for Human Resource Management (SHRM) has a story by Bill Leonard on the passage of this bill today, here.
A report by by Alicia H. Munnell, Jean-Pierre Aubry, and Dan Muldoon IB#8-18 of the Center for Retirement Research at Boston College “The Financial Crisis and Private Defined Benefit Plans” reports “Between October 9, 2007 and October 9, 2008, the value of equities in retirement plans dropped by about $4 trillion, with the decline divided equally between defined benefit and 401(k)/Individual Retirement Accounts (IRAs).” The link (leading to a full PDF report) is here. According to Leonard, the loss in corporate pension plans during this period was $900 million (but looking at the report, it might be as high as $2 trillion). Many plans had actually made money in 2007, as the crisis started to unravel.
There is an earlier story on this Act on this blog Nov. 12, 2008.
There is a detailed posting on this blog dated Sept. 16, 2008 explaining how PBGC really works.