>Representative John Boehner (R-Ohio), chairman of the House Education & the Workforce Committee, included the proposal in the newly introduced Pension Funding Equity Act. Under the bill, the US Treasury Department would establish the discount interest rate based on a blend of corporate bond index rates, according to a press release.
>At that point, according to the announcement, the discount liability for plans will be 90% to 100% of that rate, which pension plan sponsors will use to calculate their funding liabilities until 2005. In 2006, absent any intervening legislation, the benchmark reverts back to 105% of the 30-year Treasury interest rate – the benchmark prior to March 2002.
>According to Boehner, the bill is designed to provide a short-term replacement for the current 30-year Treasury bond rate that is used by many employers to calculate how much they will have to contribute to their DB pension programs.
“Congress cannot allow this issue to be put on the backburner; it is too important for the long-term retirement security of our nation’s working families. This legislation provides for a short-term fix of two years, while requiring Congress to identify a permanent solution as soon as possible,” Boehner said in a statement
The importance of the issue was underlined by the bipartisan group co-sponsoring the bill, including a number of Congressmen who are frequently polar opposites in matters of pension legislation. Signing on as co-sponsors were Ways & Means Committee Chairman Bill Thomas (R-California), Education & the Workforce Committee ranking Democrat George Miller (D- California), Ways & Means Committee ranking Democrat Charlie Rangel (D-New York), Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-Texas), and Representative Rob Portman (R-Ohio) are original cosponsors of the bill.
Earlier this week, US Senator Charles Grassley (R-Iowa) said he planned to introduce a bill requiring pension plans to base their funding on a yield curve featuring interest rates varying according to the age of a company’s workfoce (See Grassley To Unveil Age-Based Pension Yield Curve ).
In October 2001, the US Treasury Department discontinued the 30-year bonds so Congress must decide on a replacement interest rate. In July, the Bush administration proposed using a blended corporate rate for 2004 and 2005, then switching to a yield-curve methodology (See An Indecent Proposal? )