Charities Plead With Congress to Ease Pension-Savings Requirements

The stock-market crash has left many charities — including large, well-established groups — struggling to set aside money for future payments to retired employees through a type of pension plan.

Independent Sector, a national coalition of charities and foundations, is calling on Congress to ease rules that govern how charities and other employers make payments to defined-benefit pension funds, which provide specific amounts of money to retired workers.

“Without immediate relief from the pension obligations arising from the market losses of 2008, the current rules will force nonprofits that sponsor defined-benefit plans to divert substantial financial resources away from vital community services at a time when they are desperately needed,” Independent Sector said in a statement issued as the House Ways and Means Committee met to discuss making changes to the law.

The coalition said the current rules “now threaten not just the viability of the pension plans but the survival of the organizations themselves.”

Established Groups

Many charities that offer traditional defined-benefit plans are older organizations, including human-service groups, and organizations that may have labor unions, such as hospitals.

Employers take on the full cost and risk of saving for their employees and making guaranteed retirement payments to them.

In recent years, many nonprofit employers have switched to “defined-contribution” plans, such as 403(b) plans, which are easier and cheaper to handle. Under those plans, employees save before-tax earnings through payroll deductions and employers may contribute to them.

Independent Sector gave the Ways and Means Committee examples of organizations coping with pension obligations.

The coalition said Family Service of Greater Boston, which annually serves more than 5,800 families in need of help, offers a defined-benefit pension plan to its employees.

“The funding status of Family Service’s pension plan dropped to 72 percent as a result of the market decline, creating projected future minimum annual contributions of almost $500,000 for this small agency,” Independent Sector said.

Family Service “has already significantly reduced or eliminated other benefits, increased the employee share of healthinsurance premiums, frozen wages for a two-year period, eliminated positions through attrition, and consolidated administrative functions,” Independent Sector said. “Now it is facing further actions that could impede its ability to sustain critical services.”

Investment Losses

A federal law, called the Pension Protection Act of 2006, significantly increased the pension obligations of charities and other employers to guarantee that they will have enough money to pay retired workers.

Benefits that are promised in a defined-benefit pension plan are paid for through contributions from employers, as well as the earnings on those contributions.

The Ways and Means Committee observed in a statement that, for many plans, the changes made by the Pension Protection Act first took effect in 2008, just before the economic meltdown.

“As a result, employers who sponsor defined-benefit pension plans may find themselves simultaneously struggling to navigate an economy during a severe downturn with decreased cash flow and less access to credit, while having to make up for significant investment losses incurred in the pension trusts that fund their workers’ pension benefits,” the committee said.

The Ways and Means Committee noted that Congress provided some relief to employers by modifying pension rules in a law passed last year. But the committee added that “many employers believe that additional relief is necessary.”

Extended Time

Lawmakers are considering giving employers more time to cope with pension investment losses suffered in the stock market’s crash while ensuring that employees receive their proper benefits.

Independent Sector asked Congress to provide a temporary reprieve that will allow groups “to recoup the shortfall for 2008 over a longer, more manageable period.”

Said Michael Watson, senior vice president for human resources at Girl Scouts of the USA: “Nonprofits have suffered a great deal from the recession — reduced budgets, reduced contributions, reduced endowments — so to have an additional negative impact does not help them, or the country.”