The Principal to Congress: Save U.S. Pension Plans
Retirement leader urges temporary legislative relief for companies with defined benefit plans
November 12, 2008 (Des Moines, Iowa) — Companies with defined benefit pension plans may soon find themselves between a rock and a hard place: make payroll or pump money into their pension plans. Even with a cash infusion, many could still face having to freeze or even cut benefits because of new federal rules.
Market turbulence has eaten away at pension fund asset values. Funding levels could be low enough to trigger new benefit payment restrictions put in place by the Pension Protection Act (PPA) of 2006. The Principal Financial Group® is urging Congress to provide temporary relief from those rules when their session resumes November 17.
“The Pension Protection Act rules were designed to protect defined benefit plans during normal times. But these are not normal times and in this topsy-turvy environment the rules may have the opposite effect,” said Daniel J. Houston, president of Retirement and Investor Services at The Principal®. “Because of unprecedented market swings, plans that have historically been well-funded may now come in under the thresholds established by the PPA. Companies may be forced to inject cash at the worst possible time. We appeal to Congress to protect those companies and the retirement security of millions of American workers by delaying those rules.”
The Principal® has joined with industry trade organizations in asking Congress to:
- Permit pension plans to spread out current asset losses. Congress should allow plans to smooth out unexpected gains and losses in asset values over a 24-month period. Under current rules, required funding contributions are generally based on current market values even though benefits are paid over the long term.
- Slow the transition to the new Pension Protection Act funding rules. This would allow time for markets and assets values to recover.
“We believe these measures could help with cash funding and potentially reduce the number of defined benefit plans subject to benefit restrictions,” said Houston.
Help for plan sponsors now
In the meantime, there are actions plan sponsors need to take now. The Principal is launching an educational program and a new estimation tool, in addition to its consulting services, to help financial professionals and their defined benefit plan clients gauge the potential impact of market volatility on the value of plan assets and the required contributions to their defined benefit plans.
The new, easy-to-use calculator helps estimate the potential costs and contribution amounts for 2009 under different market scenarios.
“This is an extremely challenging time for defined benefit plan sponsors,” said Chris Mayer, vice president, Retirement and Investor Services at The Principal. “As the largest defined benefit service provider[1] in the nation, we are doing everything we can to provide the tools and consulting resources to help financial professionals and their clients manage the critical decisions that lie ahead.”
About the Principal Financial Group
The Principal Financial Group® (The Principal®)[2] is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $308.0 billion in assets under management[3] and serves some 19.0 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
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- [1]
- The Principal is the #1 service provider of defined benefit plans in the nation (Investment Advisor Magazine, Nov. 2008).
- [2]
- "The Principal Financial Group" and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
- [3]
- As of September 30, 2008
