(WASHINGTON, October 1, 2009) -- At today’s House of Representatives Ways and Means Committee hearing on defined benefit pension plans, Independent Sector issued the following statement calling for temporary relief for sponsors of these plans, including countless nonprofit organizations that might otherwise be forced to make potentially drastic cuts in the vital services they provide to individuals and communities suffering from the economic downturn.

Statement:

Independent Sector thanks Chairman Rangel and members of the House Ways and Means Committee for using this important hearing to look for ways to avoid the looming threats to the vital services provided by the countless nonprofit organizations throughout our nation that offer their employees defined benefit pension plans. These organizations are on the front lines in helping millions of families who are suffering through our ongoing financial crisis and who come to our nation’s nonprofits for food, shelter, medical care, and financial and crisis counseling.

Many nonprofit organizations that offer defined benefit pension plans are striving to meet the growing need for their services despite diminishing private contributions, increasing delays in state and local government reimbursements for contracted services, and reduced access to credit. These nonprofits include both large and small human service agencies, educational institutions, and arts organizations that operate at the local, national, and international level. All have long-standing presences in their home towns. They provide pensions not as an opportunity to take a tax deduction--they are already tax exempt--but as a cost-effective means for attracting and retaining qualified employees committed to serving their communities.

These nonprofits have endeavored to meet the significantly increased minimum funding obligations imposed by the Pension Protection Act of 2006 while maintaining programs upon which individuals and communities rely. The abrupt market decline last year turned those pension funding obligations into a severe problem never anticipated when the act was drafted. The funding rules now threaten not just the viability of the pension plans, but the survival of the organizations themselves. Consider the following examples:

• Family Service of Greater Boston, a 174-year old human service agency that serves over 5800 mostly poor and working poor families each year, offers a defined pension plan to employees responsible for carrying out programs for healthy child development, structured residential programs for teen mothers and their children, and intense behavioral health programs for severely abused and neglected children. 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. The agency has already significantly reduced or eliminated other benefits, increased the employee share of health insurance premiums, frozen wages for a 2-year period, eliminated positions through attrition and consolidated administrative functions. Now it is facing further actions that could impede its ability to sustain critical services.
• A human services agency in the Midwest with fewer than 400 employees saw its pension funding level decline by 30 percent in 2008. The organization has been unable to secure bridge loans due to its $5.5 million pension funding shortfall, further limiting its ability to meet pension funding obligations, much less its ongoing operational costs.
• A large Northeastern nonprofit maintains a multiple-employer pension plan that provides retirement security to approximately 10,000 current and former employees. Due to the severe recession, the plan is facing an increased contribution of $5.3 million this year, and annual increases of $11 million in the following several years, 70 percent more than its base contribution of previous years. Without legislative relief and other cutbacks, the organization states that the increased cost of the defined benefit plan “would significantly impair our charitable mission to help those who are poor and vulnerable and place [the organization] and its agency system in financial peril.”
• A large national charity that has sponsored a defined benefit plan for six decades is facing an increase in pension contributions of more than 250 percent for 2010 due to the investment losses. The organization has already reduced staff by 15 percent and, because it has no endowment, will be forced to borrow much of the $4.4 million needed to satisfy its unexpected pension obligations.

The budgets of nonprofits serving multiple needs in their communities are already stretched too thin, and, as the recent cuts described above demonstrate, additional expenses will mean eliminating or reducing existing programs. Most nonprofit organizations that sponsor defined benefit plans do not have endowments or other sources of funds to cover these unexpected pension obligations. A December report of the Urban Institute (Maintaining Nonprofit Operating Reserves: An Organizational Imperative for Nonprofit Financial Stability, December 2008) found that nearly fifty percent of nonprofits located in Washington, D.C. had operating reserve ratios of less than 3 months of their annual expense budget. More worrisome, 32 percent had reserve ratios of zero to three months. 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.

We urge Congress to enact temporary funding relief for nonprofit organizations and other sponsors of defined benefit pension plans that will allow them to recoup the shortfall for 2008 over a longer, more manageable period. By stretching out payments for these unexpected losses, such relief will permit organizations to maintain services and jobs, while continuing to fund their pension plans.

We thank you for your consideration, and look forward to working with you and your staff to develop and pass legislation that will help our organizations continue to serve communities across the nation while providing secure retirements for our employees.

Click here for more information about the importance of pension funding relief.

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Independent Sector is a nonprofit, nonpartisan coalition of approximately 550 charities, foundations, and corporate giving programs, collectively representing tens of thousands of charitable groups in every state across the nation. Its mission is to advance the common good by leading, strengthening, and mobilizing the nonprofit and philanthropic community..