2009-10-30
On October 29, Hewitt's Rick Jones testified before the Senate Health, Education, Labor, and Pensions (H.E.L.P.) Committee in a hearing entitled "Pensions in Peril: Helping Workers Preserve Retirement Security Through a Recession."

Rick sat on a panel that addressed concerns of the impact of bankruptcy on pension security. He also presented our views on funding relief and previewed Hewitt's early ideas on reinventing retirement to include third-party risk sharing. In his testimony, Rick stated:

"In this economic turmoil, many companies are feeling financially forced to take actions today that will create a retirement income gap that is already very difficult for many American workers to fill. While the federal government has taken significant steps to lessen the near-term cash contribution requirements associated with the current recessionary environment, many companies still need greater short-term relief in response to the recession."

Rick pointed out that the need for this government relief is evidenced by the many companies struggling to meet their obligations, which is particularly significant in bankruptcy cases. The essential retirement income problem with company reorganizations or Chapter 11 bankruptcies is that once the defined benefit plan is frozen and terminated, a participant's future retirement benefits are significantly reduced.

Rick outlined Hewitt's recommended actions to provide temporary relief to ease the burden of the accelerated funding requirements of the Pension Protection Act of 2006 (PPA). While the original intent of PPA — to ensure sound funding for defined benefit plans — is sound, no one foresaw the deep recession ahead when the legislation was enacted. Recognizing the unique nature of those events in financial history, he recommended two changes to provide greater flexibility for defined benefit pension plan funding:

• Widening, either temporarily or permanently, the asset "smoothing" corridor for pension funding calculations from 90% to 110% of market value, to 80% to 120% of market value, and
• Allowing amortization of 2008 asset losses over a period of time significantly longer than the seven years currently required by PPA.

Longer-term, Rick presented Hewitt's views on the reinvention of pension plans to create risk sharing mechanisms with third parties. Our conceptual models for the future include:

• Participant accounts managed on a plan-wide basis to ensure prudent investment approaches;
• Life cycle based account earnings that put in place appropriate risk/return characteristics;
• Flexibility in employer, employee, and third party funding;
• Flexibility in sponsorship; and
• Annuity options during retirement years.

To read a summary of Rick's full testimony, click the link to the right. To read Hewitt's full written statement, click here. (PDF format)

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