WASHINGTON—President Barack Obama last week signed long-sought pension funding relief legislation.

The president's action came one day after the House gave final approval to the measure, H.R. 3962, on a 417-1 vote. The dissenting vote came from House Education and Labor Committee Chairman George Miller, D-Calif., who objected to the omission of provisions he backed that would beef up disclosure of 401(k) plan fees.

The new law gives employers temporary alternatives to the basic requirement—embedded in a 2006 law—that requires employers to amortize pension funding shortfalls over seven years.

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

Under the other alternative, employers can opt 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 approach for the 2010 plan year, it would only 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.

“While it is not everything that we and our plan sponsor community would have wanted, it will provide much-needed and nearly immediate relief to what are clearly some of the most challenging financial conditions that pension sponsors have faced in recent memory,” said Alan Glickstein, a senior consultant in the Dallas office of Towers Watson & Co.

But some of the relief provided to employers would be eroded by a provision known as the cash-flow rule. The rule would require employers that use 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 contributed to the plan.

Employers adopting the interest-only funding approach will be bound by the cash flow rule for three years, while the rule will apply for five years for employers adopting the 15-year amortization schedule.

Yet another provision will benefit plan participants. Under the 2006 law, plans must be temporarily frozen, and participants cannot accrue new benefits if their funding levels fall below 60%.

Under the new law, employers with plans that are less than 60% funded can, for plan years beginning before Oct. 1, 2010, look at their plans' funding levels as of Jan. 1, 2008—before the equities market plunged—to determine whether the benefit accrual stoppage rule applied.

The funding relief provisions are part of a broader measure that temporarily reverses a cut in fees the government pays doctors treating patients covered by Medicare.