PBGC Extends Interest Rate Relief

March 22, 2004 (PLANSPONSOR.com) - With pension relief legislation still in limbo, and a key filing date rapidly approaching, defined benefit plan sponsors nonetheless got some welcome relief on Friday.

>The Pension Benefit Guaranty Corporation (PBGC) last Friday afternoon issued Technical Update 04-2, which grants an interim extension of the interest rate used by defined benefit pension plan sponsors for certain PBGC reporting purposes.   The PBGC noted that while legislation now pending would change this interest rate, in the interim, Technical Update 04-2 extends use of the current interest rate for these calculations until May 31, 2004.

>The PBGC, the nation’s private pension insurer, said that the technical update was an “interim measure pending legislative developments.”   Acknowledging that pending legislation would change the required interest rate for calculating vested benefits for the PBGC’s VRP on a temporary basis for plan years beginning in 2004 or 2005, the agency said that, “once the legislative situation is clarified, the PBGC will consider whether there is a need for further guidance or further reporting relief.”

Sticking Point

>Earlier this month, selected members of the US House and Senate got together to reconcile their versions of pension relief legislation.   The only real sticking point between the two versions is a potential expansion of the so-called deficit reduction contribution (DRC) holiday, an expansion contained in the Senate version, but ignored in the House version (see  “Senate, House Get Together For 30-Year Bond Replacement” ).   The provision would provide relief to some of the most severely unfunded pension programs, allowing them to waive 80% of their DRC payments the first year and 60% the second year (see  “Details Emerge on DRC Provision of Senate Bill” ).  

>The PBGC and the White House have been clear in their opposition to the DRC modification, and the PBGC has called the amendment to include DRC rules “irresponsible,” since the provisions would “significantly further exacerbate systemic pension plan underfunding.”   The PBGC has said it would seek a Presidential veto of the legislation if it includes the DRC provisions (see  “PBGC Calls Out DRC Modifications” ).   

Relief Extension

>Since 2002, the PBGC has permitted plan sponsors to use 100% of the annual yield on 30-year Treasury bonds to value vested pension benefits, valuations that are used to calculate PBGC variable-rate premiums and to comply with reporting requirements under ERISA Sections 4010, 4043(a), and 4043(b).  

>The PBGC went on to note that the interim reporting relief provided in the Technical Update will remain in effect notwithstanding any such legislative change, and is in addition to any PBGC reporting relief that may result from such a legislative change.

The complete text of Technical Update 04-2 is posted on PBGC’s Web site at:   www.pbgc.gov/laws/techupdates/techupdt.htm

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