A coalition of 200 businesses and trade groups—including some of the biggest companies in the world—is asking Congress for relief from a two-year-old federal law requiring them to more fully fund their pension plans.
Bill Haber
Louisiana Congressman, William Jefferson, D-New Orleans, left, and New Orleans Mayor Ray Nagin, appear before the U.S. House Subcommittee on Housing and Community Development meeting in New Orleans Friday afternoon Jan. 13, 2006. The subcommittee came to New Orleans to discussing the housing problems caused by Hurricane Katrina. (AP Photo/Bill Haber)
The plea is a sign of a growing crisis in defined benefit pension plans, which cover some 40 million people in the public and private sectors, and have been hit hard by the stock market drop and the credit crunch.
"The drop in the value of pension plan assets coupled with the current credit crunch has placed defined benefit plan sponsors in an untenable position," according to a draft of a letter from the group to the House Ways and Means Committee, obtained by CNBC.
The letter does not identify the specific companies involved, for fear it would alarm employees and investors, according to a spokesman for the ERISA Industry Committee (ERIC), a lobbying group that helped draft the document.
Private pension funds owned about $2.72 trillion of stocks at the end of June, and more $1.5 trillion in mutual fund shares, according to Federal Reserve data. Given the market’s subsequent declines, they probably suffered losses of between $700 billion and $1 trillion, according to CNBC estimates. But the federal Pension Protection Act, passed in 2006, includes new, stricter funding rules for pension plans, which the business coalition now says are unrealistic.
"No one who drafted the recently enacted defined benefit funding rules anticipated the worst financial crisis since the Great Depression and a once in a hundred years 'Credit Tsunami,'" the letter says. "Unless the funding rules are modified, they will increase U.S. unemployment and slow our economic recovery," the group warns.
The coalition is seeking more time to reach the funding targets, which would require legislation by Congress.
Even before the market crisis, many companies were freezing or modifying their pension plans in order to avoid the cost of keeping them funded. Now, according to the letter, that cost is skyrocketing. The coalition claims that without an easing of the funding rules, one of its members, a large company, would see a 6000 percent increase in its required contribution for 2008-2010, from $36 million to $2.18 billion.
An ERIC spokeswoman told CNBC that the coalition is hoping Congress will take up the issue in a lame duck session this year. She stressed the companies are not asking for a bailout, just some "breathing room."