Congress Approves Pension Bill (H.R.4) With Co-op Provisions

Prevents Dramatic Increases in Employer Contributions Over Next 10 Years

The House and Senate overwhelmingly approved the “Pension Protection Act of 2006” (H.R.4, just before adjourning for the August Recess.  H.R.4, which President Bush is expected to sign into law later this month, makes significant changes to the rules governing single-employer defined benefit plans, union “multiemployer” pension plans, rural cooperative “multiple-employer” pension plans, cash balance/hybrid pension plans, 401(k) and other defined contribution plans, and IRAs.  The 907 page bill includes many provisions important to Co-op Retirement Plan employers.

Defined Benefit Provisions That Benefit

Employers and Employees Participating in the Co-op Retirement Plan

Over the past year, United Benefits Group Staff and the staff of other organizations like the National Rural Electric Cooperative Association have worked with their constituents to educate policymakers on the special on-going nature of rural cooperative “multiple-employer” plans like the Co-op Retirement Plan, and our lack of risk of default to the Pension Benefit Guaranty Corporation. (PBGC)  In a major victory for the Co-op Retirement Plan and other similar plans, H.R.4 included specific provisions that recognize this cooperative difference – specifically, H.R.4 provides a delayed effective date (until January 1, 2017) for the most costly provisions of the bill.

• Co-op Retirement Plan actuaries have estimated that, without these provisions, contribution requirements during the first three years after the effective date would have risen to as much as 15% of payroll.  This dramatic increase in funding could have forced the Co-op Retirement Plan to freeze the Plan, further reduce benefits, further increase the contributions by employees, or some combination of all these actions. 

Defined Benefit Plan Provisions Negative Impact on

Other Companies & Co-ops that do not Participate in a Multiple Employer Plan Sponsored for Cooperatives

While rural cooperative “multiple-employer” plans like the Co-op Retirement Plan are exempt from most of the legislation’s new expensive funding rules until January 1, 2017, most other plans (i.e., single-employer plans) must begin “phasing into” the new rules starting in 2008.  These new rules:

• Create new minimum funding rules that inject more unpredictability and volatility into pension financial obligations.  These new rules accelerate and increase funding obligations in the near term, and severely penalize companies that cannot meet the new funding requirements beginning in 2008.

• Creates even more accelerated funding requirements for certain “at-risk” plans (those that fall below a specified “at-risk” funding threshold) beginning in 2008.

• Severely restricts use and treatment of “Credit Balances”.  Many companies have made contributions in excess of the minimum required contributions in past years, which are maintained as a “credit balance” that can be credited against future required contributions.  Use and accounting for these “pre-funded” accounts is severely restricted under the legislation.

• Create limitations on benefit payments and accruals that would restrict benefit increases and availability of lump sum payments to retirees in underfunded plans.

United Benefits Group wishes to acknowledge the assistance provided by the National Rural Electric Cooperative Association in providing this summary of H.R.4’s application to the Co-op Retirement Plan