WASHINGTON—Provisions in a tax bill approved by the U.S. Senate last week would give employers more time to fund pension plan shortfalls, but conditions attached to the relief could reduce its appeal, experts say.

Under current law, employers must amortize funding shortfalls over seven years. The bill, H.R. 4213, would give employers two alternatives to that schedule.

Under one alternative, employers could amortize funding shortfalls over 15 years for any two plan years between 2008 and 2011.

Under the other alternative, employers would have to pay interest on a funding shortfall for only the two plan years they choose. After that, the seven-year amortization period would begin.

For example, if an employer chose the latter that is known as the “two and seven” funding approach for the 2010 plan year, it would pay interest—roughly 6% based on current rates—on the shortfall in 2010 and 2011, while the shortfall would be amortized over seven years starting in 2012.

Either approach would significantly reduce the cash pension plan contributions employers would have to make compared with current requirements. Pension plans' funding levels have been battered by the fall in the equities' markets and low interest rates that have pushed up the value of liabilities.

“Employers desperately need relief and for some employers” the legislation will provide it, said Craig Rosenthal, a partner with Mercer L.L.C. in New York.

But another provision—known as the “cash flow rule”—could seriously erode the financial relief provided by stretching out plan contributions. Those provisions would require employers that utilize either of the temporary funding schedules to contribute extra cash to their plans to equal “excess” employee compensation or “extraordinary” dividends.

For example, an amount equal to compensation in excess of $1 million paid to any employee would have to be paid to the pension plan. If an employer had 10 employees who each made $1.5 million, the employer would have to contribute an extra $5 million to its plan.

Employers adopting the “two-and-seven” approach would be bound by the cash-flow rule for three years, while the cash-flow rule would apply for five years for employers adopting the 15-year amortization schedule.

The cash flow rule, if adopted, “will cloud the potential economic benefits of the funding relief” for some employers, warned Mark Warshawsky, director of retirement research for Towers Watson & Co. in Arlington, Va.

The broader bill is expected to be considered by the House this week.