Congress Pushes Back Pension Payments for Corporations

Due to an act recently passed in Congress, companies are required to pay significantly less money to pension funds than was expected in previous years. By using a model similar to what was in place during the recession, companies are allowed to base their payments on interest rates from 25 years ago.

The Boston Globe has more on the story:

A recession-era measure aimed at giving companies a temporary break from large pension obligations has been extended to 2021, allowing corporations to put off hundreds of millions of dollars in payments to fund employee retirement plans.

The amounts can be eye-popping at individual companies. Under the old rules, Massachusetts Mutual Life Insurance Co. of Springfield, for instance, would have had to put $129.8 million into its $2 billion pension plan last year, according to a notice sent to employees. With the break from Congress: $0.

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This steep dive in pension funding is playing out across corporate America, retirement specialists say, and in some cases is pushing big bills out into the future.

“The rules from Congress have really allowed sponsors to kick the can’’ down the road, said Matt McDaniel, a partner in Philadelphia with Mercer, a benefits consultancy. “By saying you have to put in less today — at some point down the road, you’ll have to put in more.”

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In an example of how this works, if the two-year average rate on high-quality corporate bonds for part of a pension was 1.47 percent, the adjusted rate under the 25-year average would be 4.43 percent, according to the IRS.

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Thirty percent of pension plan sponsors in a study last year told Mercer, the consultant, they planned to pay only the minimum required into their pensions.

The other 70 percent are paying more than the minimum. ConEdison, for one, plans to contribute $507 million to its pension plans for 2015, according to a filing with securities regulators. That’s close to its $534 million that would have been required under the old interest rate assumption.

Congress has recently renewed the plan for the next six years.