President Signs Bill Providing Temporary Funding Relief for Pension Plans

President Barack Obama signed HR 3962, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, on Friday. The bill includes the so-called “doc fix,” increasing Medicare reimbursement to physicians by 2.2% through the end of November, in place of a scheduled 21% cut.


The pension relief title of HR 3962 allows single-employer plans to elect to amortize over a longer period pension shortfalls caused by losses in asset value they experienced in 2008. However, if plan sponsors pay compensation exceeding $1 million to any employee (including nonqualified deferred compensation amounts set aside or reserved in a trust or other arrangement) or pay “extraordinary” dividends or stock redemptions during the relief period, they must increase pension installment contributions by the excess amount of the dividends or redemptions. The compensation limits apply to services performed after Feb. 28, 2010.


Extraordinary dividends and stock redemptions are the portion of the combined total of dividends declared and stock redemptions paid during the plan year that exceeds the greater of either the employer’s adjusted net income (without regard to interest, taxes, depreciation and amortization expenses) in the preceding plan year, or dividends declared in the plan year (if the employer has declared dividends in the same manner for the immediately preceding five consecutive years). Certain redemptions and dividends with respect to preferred stock are excluded.


For multiemployer plans, the act provides relief from standard accounting rules to treat separately from any other “experience gain or loss” such experience gain or loss attributable to net investment losses incurred in either or both of the first two plan years ending after Aug. 31, 2008. Such gains or losses may be amortized over 30 years. The act also prescribes an extended “smoothing period” for the difference between expected and actual returns in the same plan years. Such an extension will be deemed an approved change in funding method under IRC § 412(d)(1) and will not be considered an unreasonable asset valuation method solely because of the change. The provisions also restrict pension benefit increases for plans making the election.

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