Chamber Urges Senate to Move Forward on Comprehensive Pension Reform
November 16, 2005
TO THE MEMBERS OF THE UNITED STATES SENATE:
As the Senate proceeds to consider comprehensive pension reform legislation, I am writing on behalf of the U.S. Chamber of Commerce, the world's largest business federation representing more than three million businesses and organizations of every size, sector, and region, to urge the Senate to move forward and act on this important initiative. While there remain good-faith disagreements over the best way to address current defined benefit funding problems and related issues, it is clear that it is important that S. 1783, the Pension Security and Transparency Act of 2005, be considered on the Senate floor and moved to conference with the House.
While we support the process moving forward, we remain troubled by certain serious issues and urge Congress to resolve these issues in conference. These issues include the following:
Plan Sponsors Need Predictability in Funding Rules.
- An employer's credit rating should not be used to determine its pension liabilities. Many companies are in cyclical businesses and their credit rating often changes, and, thus, funding requirements would be unpredictable.
- Plan sponsors need an appropriate smoothing period. Businesses normally estimate budgets and cash outflows over a five year period. Using an interest rate assumption or determining asset values with a significantly shorter smoothing period will increase the volatility of plans' liability estimates.
- The credit balance concept must be maintained. Changing the credit balance rules on plan sponsors now would be unfair and could cause employers to view the credit balance system as unreliable and, thereby, create a disincentive for advanced funding.
Employers Need A Substantial Transition Period. Employers will need time to implement the sweeping changes being considered and the three year transition period in the legislation is not long enough. Without an appropriate transition period (i.e., 10 years) there could be massive disruptions to their capital spending and long-term business plans.
Multiemployer Plans Must Have the Tools Necessary to Ensure Their Continued Viability. Multiemployer plans are seeking measures that will provide them with the tools necessary to address their funding issues. It is vitally important that multiemployer reform continues to be part of the comprehensive pension reform package.
Congress Must Provide Comprehensive Clarification of the Hybrid Plan Design. Without statutory guidance that confirms the validity of these plans both retroactively and prospectively, hybrid plans remain at risk and the retirement security of millions of workers who benefit under these plans is threatened.
Sponsors of defined benefit plans have proven their commitment to the system by establishing and maintaining defined benefit plans and are depending on Congress to help them continue to contribute to the retirement system. Thank you for your attention to this important matter.
R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce