LINCOLNSHIRE, Ill. — 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.

Maurissa Kanter

,  Hewitt Associates,  (847) 883-1000

MacKenzie Lucas

,  Hewitt Associates,  (847) 883-1000