Senate Committee Schedules Pension Stabilization Act Vote

>The Pension Stabilization Act, a bill that would allow pension liabilities to be calculated using a composite corporate bond index for three years, follows in the footsteps of thePension Funding Equity Act (HR 3108) approved by the US House of Representatives on October 8 (See  US House Solidly Approves Pension Funding Bill ). HR 3108 providedfor the replacement of the 30-year Treasury bond rate with a blend of corporate bond index rates through 2005. Backers of the measure say that will give lawmakers a chance to find a more lasting solution to the current funding crisis affecting many tradition defined benefit pensions.

Currently, pension funding levels are calculated using the 30-year Treasury bond interest rate.   However, this method has come under fire from many in the pension industry who complain that using the Treasury bond interest rate in the liability and funding calculations artificially inflates a plan’s funding responsibilities.  Congress enacted a temporary remedy in March 2002 by allowing employers to use a higher rate.  Because this fix expires at the end of 2003, many industry representatives have been pressing lawmakers to address this issue before year’s end when it reverts back to the 30-year Treasury rate.