The Principal Ready to Help with New Pension Funding Relief
Employers with Defined Benefit Plans Face Complex Decisions
June 25, 2010 (Des Moines, IA) - Employers who offer defined benefit pension plans have big decisions to make. The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, signed into law this morning by President Barack Obama, includes sorely needed funding relief for employers who offer defined benefit (DB) plans.
The legislation has the potential to reduce the required annual funding levels for those DB plan sponsors who choose to use the relief. However, there are restrictions and potential “penalty” contributions for DB plans that choose the relief. Plan sponsors must carefully review their organizations to determine if the relief is a good fit for them.
“We’re pleased Congress addressed this critical issue. It’s been a long, rough haul for many employers with defined benefit plans as they’ve struggled with funding decisions in the aftermath of the market downturn,” said Paul Brown, vice president of retirement and investor services, the Principal Financial Group®. “This legislation does not change the ultimate cost of the plan. It merely shifts the timing of the contributions. Over the long term, we believe this relief may benefit only certain plan sponsors.”
Brown said the legislation would reduce the current cash flow requirements for plan sponsors who are not able or willing to make the regular contributions required by law over the short term. Some organizations may be able to use the relief without incurring restricted actions:
- Non-profit organizations
- Organizations that are not stock companies
- Organizations that do not currently provide total compensation above $1 million to any employee
“Plan sponsors should contact their actuaries to understand the impact on their business and weigh the pros and cons of participating in the relief,” said Brown. “This is a complex choice. We are ready to help plan sponsors and their financial professionals understand the provisions and analyze whether the funding relief can be beneficial to their plan and organization.”
About the Principal Financial Group
The Principal Financial Group® (The Principal®) 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 $293.4 billion in assets under management and serves some 18.7 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.