Hewitt Provides Recommendations on Solving Current Pension Funding Crisis
December 09 2008 - 9:00AM
Business Wire
As Congress resumes legislative business this week, Hewitt
Associates, a global human resources consulting and outsourcing
company, urges lawmakers to take immediate action to address the
current pension funding crisis by modifying the Pension Protection
Act of 2006 (PPA) pension funding rules. Without legislative relief
in the current economic climate, the PPA funding requirements may
further jeopardize American jobs, businesses and retirement income
security. Hewitt is recommending a series of refinements to the PPA
rules that would ease the pending and significant cost burden on
employers who offer defined benefit pension plans. Due to poor
asset returns experienced this year, the PPA funding rules will
require a substantial increase in cash contributions for many
companies. To meet this requirement, organizations may be forced to
use money earmarked for salaries, growth investments and other
business purposes to fund their pension plans. In the current
economic environment, this could lead to an increase in layoffs,
bankruptcies, or at the very least, more plan freezes or closures
at a time when many employees already face a less secure retirement
due to losses in their 401(k) plans and Individual Retirement
Accounts (IRA). This is particularly concerning because Hewitt�s
research shows that employees who only have access to 401(k) plans
face significantly lower retirement income levels than those with
access to 401(k) and pension plans, even in thriving economic
conditions. Hewitt believes small refinements can be made to the
PPA funding rules that will provide plan sponsors with a more
manageable way of stabilizing the pension plans hit so hard by the
current market conditions. These proposals include: Allowing the
use of full asset smoothing. This would enable plan sponsors to
�smooth out� market fluctuations over a period of up to two years
without constraints such as the current rule limiting the average
asset value to 110 percent of market value. Modifying the funding
transition rules. Doing so would avoid discontinuity in funding
requirements and make it less likely that cash flow volatility will
force plan sponsors to move away from defined benefit plans.
Modifying the funding-based benefit limitation rules. This would
include temporarily suspending the limitations on employers to pay
accelerated benefit distributions such as lump sums. Alternatively,
we recommend modifying the limitation so that it applies only to
plans defined in an �at-risk� status. Allowing for automatic
approval for changes in funding methods. Plan sponsors should also
have the flexibility to change to a different funding method that
is expected to be more appropriate for them over the long term�when
market conditions are more settled�without requiring approval from
the Internal Revenue Service. �We believe the design of the PPA
funding requirements never contemplated the unprecedented market
conditions we are facing today,� said Rick Jones, chief actuary of
Hewitt�s Retirement and Financial Management practice. �In this
current economic environment, the amount of money employers will be
required to contribute to their pension plans may be two to three
times higher�if not more�than previous levels. Our proposals
present a sensible framework for refining the funding requirements
in a way that will preserve jobs, businesses and financial security
for the millions of Americans who rely on pension plans as a
critical part of their retirement income.� About Hewitt Associates
For more than 65 years, Hewitt Associates (NYSE:HEW) has provided
clients with best-in-class human resources consulting and
outsourcing services. Hewitt consults with more than 3,000 large
and mid-size companies around the globe to develop and implement HR
business strategies covering retirement, financial and health
management; compensation and total rewards; and performance, talent
and change management. As a market leader in benefits
administration, Hewitt delivers health care and retirement programs
to millions of participants and retirees, on behalf of more than
300 organizations worldwide. In addition, more than 30 clients rely
on Hewitt to provide a broader range of human resources business
process outsourcing services to nearly a million client employees.
Located in 33 countries, Hewitt employs approximately 23,000
associates. For more information, please visit www.hewitt.com.
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