Wednesday, October 28, 2009

Congress Introduces Legislation to Give Nonprofits Temporary Pension Liability Relief

Today's NonProfit Times is reporting that legislation introduced in Congress yesterday could provide temporary relief for nonprofits faced with huge increases in pension contributions in the coming years.

The measure, introduced by Rep. Earl Pomeroy (D-N.D.) and Rep. Patrick J. Tiber (R-Ohio), will either be taken up by the Senate directly on the floor or will go through the Health, Education, Labor and Pensions Committee.

According to Patricia Read, Senior Vice President, Public Policy and Government Affairs at Independent Sector, a Washington, D.C.-based coalition of nonprofits, “This was a problem that came up with the 2006 Pension Protection Act, when they did not foresee the consequences of economic downturn." 

Michael Watson, Senior Vice President, Human Resources and Diversity, for the Girl Scouts of America, believes that “The [Pension Protection Act] was designed to make sure that companies paid an adequate amount into their pensions but I don’t think any of the designers anticipated the dramatic decline in the market to the extent that we’ve had.” 

Currently, nonprofits that offer defined benefit pension plans grapple with daunting budget challenges as they face huge increases in their required, minimum pension payments.  Under the bill introduced in Congress, employers could make amortization payments over nine years instead of the required seven, and make interest-only payments in the first two years. They also could choose to make level payments for a 15-year period.

Diana Aviv, President and CEO of Independent Sector, gave a few examples of nonprofits that would be affected if some type of relief is not granted:

  • Family Service of Greater Boston saw funding status fall from 94 percent to 72 percent in one day due to a market decline in 2008, and now it is underfunded by $2 million.
  • Detroit Symphony Orchestra’s defined benefit assets declined 23 percent between April 2008 to April 2009, increasing the cost of the plan by almost $1.5 million, a 215-percent increase over the prior year.
  • One nonprofit in the Midwest estimates its annual contributions will increase by six to eight times what it was the previous year.

“The problem is that this comes at exactly the time when folks aren’t having an easier time of raising money as they might have had in the past, so there is the double whammy,” Aviv said. Although “predicting anything with certainty one does at one’s own peril … there is sympathy for this for resolution,” she said. “We’re not seeing obstacles and barriers that would suggest this is going to be a big fight. All things being equal, we are hopeful that this will be resolved,” Aviv added.


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