Bush Pushes Pension Reform Proposal
July 8, 2003 (PLANSPONSOR.com) - The Bush
administration is pushing for a temporary adjustment to
current pension reform legislation to offer United States
companies a breath of fresh air from expanding pension
liabilities on the way to more complex and accurate
obligation calculation requirements.
Under current regulations, companies have been
afforded temporary relief through an expanded range
around the 30-year Treasury rate that defined benefits
plans can use to calculate funding status that was
provided in an economic stimulus bill enacted in
2002. However, that relief expires at the end of
2003, according to a Reuters report.
>The Bush proposal, which still needs Congressional
a new interest rate benchmark to replace the 30-year
Treasury bond rate, which has plunged as a result of the
discontinuation of the 30-year Treasury bond.
To accomplish this, it would temporarily adopt a
provision in pension reform legislation put forward by
Representatives Benjamin Cardin (D-Maryland) and Rob
Portman (R-Ohio) (
Unfinished Business, Regulatory Relief Top
Further, it represents a deviation from earlier
Treasury Undersecretary Peter Fisher, who sought to extend
the temporary solution for another two years.
However, lawmakers and industry representatives said they
wanted a permanent fix faster than that.
>On the accelerated Bush schedule, for the first two
years, the contribution rate would be calculated from a
blend of rates on high-quality corporate bonds, as proposed
by Portman and Cardin. Following that, firms would have to
start phasing in calculations that take into account when
their pension bills would actually come due, using
different points on the corporate bond yield curve. The
phase-in would be complete by the fifth year.
>At issue is what interest rate companies should use
when deciding how much to sock away for their defined
benefit pension plans. The current r
ate has sunk to artificial lows in recent years,
inflating the amount of cash that companies with defined
benefit pension plans must allocate to satisfy funding
requirements. The low rate also inflates lump-sum
distributions by creating the appearance that more cash is
needed to reach a promised benefit at retirement age,
although it is unclear whether the updated rate will be the
same for both funding and lump sum calculations.
Reaction On Both Sides
>Congressional Republicans commended the
administration for bringing forward a proposal.
"Because this issue has wide-ranging implications on
retirees, employers, workers and the federal government, we
have to find a suitable long-term replacement for the
30-year bond rate," Representative John Boehner (R-Ohio),
chairman of the House Education and Workforce Committee,
said in a statement.
However, one industry group had a lukewarm reaction.
Janice Gregory, vice president of the ERISA Industry
Committee, which represents major US companies with 25
million active and retired workers, said Treasury had taken
a step in the right direction by moving toward a corporate
But she added, "They still have a very unrealistic
picture of what it means to change to a yield