House Panels Ditches Bush Pension Proposal

July 17, 2003 ( - The Bush Administration's torch for pension interest rate reform has flickered out, as the US House of Representative's Ways and Means Committee will take up the latest Portman-Cardin legislation.

>The Pension Preservation and Savings Expansion Act of 2003 (HR 1776) , sponsored by Representatives Ben Cardin (D – Maryland) and Rob Portman (R – Ohio), seeks expanded access to tax-favored savings accounts and replacing the 30-year bond rate when calculating pension liabilities (See Unfinished Business, Regulatory Relief Top Portman/Cardin Bill ) .   Missing from the revised proposal will be suggestions from the White House to adopt a pension funding formula utilizing a yield curve that was criticized since introduction, according to a Dow Jones report.

>While the move is not official, an aide familiar with the legislation confirmed the remarks made by Cardin in regards to the committee’s actions.   However, the aide also cautioned that details of the bill are still being hammered out and could change by Friday.

Bill Billings

Portman-Cardin III, as some have dubbed it, would institute 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.  The new benchmark would be based on long-term conservative corporate bond rates to “ensure that the funding, premium, and lump sum calculations are based on a rational and realistic interest rate”, according to the Congressmen.

The legislation would also provide targeted funding relief for multi-employer plans, and will instruct Treasury to update mortality table assumptions to “more accurately reflect the life expectancy of particular worker populations”, while also correcting “glitches” in the pension funding rules.  The bill would also allow private sector pension plan employee contributions to be made on a pre-tax basis, as they are currently for public-sector plans.

Harshest criticisms against the administration’s proposal came in its deviation from the Portman-Cardin legislation after a two-year transition using the corporate bond rate.  At that point, under the administration’s plan, 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 (See Experts Say Administration Pension Proposal A Step in the Right Direction, But…).   Many of the critics were wary that such a calculation would start more fires than it would put it, creating a Pandora’s box of volatility and complexity in valuing pension liabilities.

However, the Portman-Cardin bill did not get through the committee unscathed.   While the legislation does include approximately $50 billion over 10 years in tax incentives for savings, this is a substantial reduction from the more than $200 billion plan the bill’s two sponsors had originally written.