As we watch the COVID-19 crisis unfold each day, there are many devastating impacts to individuals, companies, and our overall economy. Retirement plans have not been spared, either. But, while individuals may be shocked to see the steep drop in their 401(k) accounts, they may not have yet noticed that their employer’s defined benefit (or pension) plan is likely not faring so well, either. These cornerstones for millions of Americans have taken a hit and Congress needs to act soon to help companies keep these plans and the companies that sponsor them afloat.
Without help from Congress, many companies will have to shovel large amounts of money into their pension plans this year to meet stiff regulatory requirements, and even more next year if plan assets do not recover by the end of the year. While in normal times steady funding of pension obligations is undoubtedly the right thing to do, we are not in normal times. Participants in these plans deserve to have their benefits secured, but they could instead see their plans ended if the sponsoring company goes bankrupt due to requirements to divert money to their pension plan. Alternatively, a company may be forced to cut jobs to help them gather enough cash to make their required payments. These grim alternatives could be avoided if Congress acts now to allow companies more time to make the required payments.
Earlier this week, in a letter to lawmakers, Buck recommended Congress enact some key changes to the defined benefit plan funding rules to do just that – help companies get through the current economic downturn, while still keeping their plans afloat. The recommendations included allowing companies to delay their 2020 funding requirements until 2021, thus temporarily easing cash requirements. In addition, Buck recommended that there be an immediate extension of administrative deadlines coming up within weeks so companies can keep their focus on more urgent and critical matters. These immediate actions should be strongly considered, along with more fundamental changes to funding requirements. As we saw in 2008, the current funding rules do not work when markets are hit hard. Unfortunately, it appears we are being taught that same lesson again in 2020.
Download Buck’s letter to Congress here.