House, Senate Committee Run Aground on 30-Year Bond Discussions

March 26, 2004 (PLANSPONSOR.com) - The joint U.S. House of Representatives, Senate committee convened to hammer out compromise legislation to replace the 30-year Treasury bond for pension calculations has hit a snag.

“These negotiations are in serious danger and I believe that this bill is in serious jeopardy at this point,” said Representative John Boehner (R-Ohio), chairman of the House Education and the Workforce Committee, told the Associated Press.  

First the good news, the two sides have come to terms with the inclusion of a deficit reduction contribution (DRC) holiday, which was included in the Senate’s version of the bill but legislated out of the House’s version.   Under the DRC provisions of the Senate bill, roughly $16 billion in breaks are granted to companies via a reduction in DRC to those companies hit hardest by the recent pension underfunding storm.  For those companies, the DRC holiday means they could waive 80% of their DRC payments the first year and 60% the second year (See  Details Emerge on DRC Provision of Senate Bill).

Now the bad news,the conferees were hung up over relief for multiemployer plans that have become underfunded. While there is agreement that the 20% of those plans that are the worst off should get assistance, members were having difficulty agreeing on a how to define the 20%.   Additionally, members were divided on restricting future benefit increases in the plans that receive relief.

Unfortunately, even if the two sides manage to come together and reach a compromise, it is not guaranteed that the measure will take effect.   The White House has expressed concern that too broad of a bill would threaten the solvency of the government’s pension insurer, the Pension Benefit Guaranty Corp. (PBGC) and officials of the President have hinted that the president might veto such a measure (See PBGC Calls Out DRC Modifications ).

The real losers though could be defined benefit plan sponsors and participants if the two sides do not kiss and make up.   Also contained in the compromise measure – a provision both sides agree on – is the implementation of a temporary replacement to the 30-year Treasury bond that expired last year.   Once expiring, the defunct bond’s interest rate began dropping precipitously, which in turn, under an inverse relationship, causes required pension contributions to increase.  To remedy the situation, both the House and Senate version include a temporary benchmark of blended corporate bond rates for pensions to use.

With passage of the bill, the PBGC estimates the legislation could save $80 billion over the next two years, according to a news release by the office of the bill’s sponsor Senator Judd Gregg (R – New Hampshire).   But the clock is ticking and unless the proposal is signed, sealed and delivered to the President by April 15 th there will be pension funding difficulties across the land, the date many pension funds make their contributions for the year.

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