The Pension Funding Equity Act

April 2004:

President Bush signed into law the Pension Funding Equity Act of 2004, which is expected to save American companies around $80 billion in pension contributions through the end of 2005. The bill was designed to help companies struggling to pay pensions following the weak stock market over the past several years.

The law will relieve 31,000 companies covering 35 million workers who have traditional “defined benefit” pension plans. It does not provide relief through government payments. Rather, it allows companies to use a different formula to their calculate pension contributions.

The bill provides an additional $1.6 billion in extra relief for some steel companies and major airlines. But the legislation contains less help for companies with multi-employer plans, such as those covering union workers in the construction and trucking industries. Less than 4 percent of the 16,000 multi-employer plans qualify for the pension relief, according to Sen. Edward Kennedy (D-Mass.).

However, for workers with defined benefit multiemployer plans, the new law requires plan administrators to communicate more directly with employees about the state of their pension funds. If workers’ pensions are at risk of being underfunded, plan administrators must now inform the plan participants.

Administrators must send yearly notices to all members of the pension plan. These annual updates must be written in language that the average person can understand. They must also be easily accessible – whether in electronic or hard copy format.

The annual notices must include the following information:

1. A phone number for the plan’s administrator, its main administrative officer, the employee’s plan number and the employer’s identification number.
   
   
2. A statement as to whether the plan's funded current liability percentage for the plan year to which the notice relates is at least 100 percent (and, if not, the actual percentage).
   
   
3. A statement of the value of the plan's assets, the amount of benefit payments, and the ratio of the assets to the payments for the plan year to which the notice relates.
   
   
4. A summary of the rules governing insolvent multiemployer plans, including the limitations on benefit payments and any potential benefit reductions and suspensions (and the potential effects of such limitations, reductions, and suspensions on the plan).
   
   
5. A general description of the benefits under the plan which are eligible to be guaranteed by the Pension Benefit Guaranty Corporation, along with an explanation of the limitations on the guarantee and the circumstances under which such limitations apply.

If plan administrators fail to provide plan members with these updates, they will be held accountable by the Department of Labor.

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