Pension Funding Stabilization Legislation Could be Included by Conference Committee

On Tuesday, May 8, members of Congress appointed to a House-Senate Conference Committee will begin meeting to reconcile differences between the House-passed 90-day extension to the current surface transportation program and the $109 billion Senate-passed bill which makes changes to and reauthorizes the program through 2013. 

House and Senate conferees will be forced to deal with several major differences between the versions of the legislation passed by their respective bodies. Among the major issues that must be addressed by the Conference Committee is the Senate’s inclusion of pension funding stabilization provisions as a way to generate revenue to fund transportation programs. The Senate-passed version of the transportation reauthorization bill, known as MAP-21, includes a provision that provides pension funding stabilization in the short term by basing pension plan interest rates on historical averages. In 2012, the interest rates used for determining pension plan obligations would be adjusted from 2 years under current law to a basis of within 10 percent of the average rate over 25 years. The 10 percent corridor is increased by 5 percent each year until it reaches 30 percent in 2016 and subsequent years. This change effectively helps compensate for today’s artificially low rates and is expected to generate more than $9 billion in revenue to be used for transportation programs.

This change in pension policy has the possibility of providing short-term relief to a wide range of corporations with defined-benefit pension obligations. Without a legislative fix, funding obligations for 2012 are projected to be almost four times the level in 2010 and almost seven times the 2010 levels by 2016. These growing liabilities severely affect a company’s ability for future investment and could threaten employers’ ability to continue to provide benefits under the voluntary pension system.

At this time, it is unclear whether or not the Conference Committee is likely to include the pension funding stabilization in the final surface transportation reauthorization legislation. It is likely that a number of Dykema clients stand to benefit from this change in pension law and therefore, should contact their Representatives and Senators to educate them about what these changes mean for their individual companies. Dykema’s government policy advisors are currently assisting clients in educating members of Congress and stand ready to assist additional companies that wish to contact their elected officials about the importance of this provision to their bottom line. 

For further information, please contact Mary Beth McGowan at 202- 906-8631 or Andy Buczek at 202- 906-8655, both government policy advisors in Dykema’s Federal Government Relations practice.

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