Treasury Proposes Fix For Pension Liability Calculations
The Treasury Department says employers ought to use a yield-curve approach when calculating pension liabilities.
Today, plan sponsors use one simple rate that is 20% higher than the four-year average of yields on 30-year Treasury bonds.
Under a new Treasury Department proposal, sponsors would use a rate based on corporate bond rates.
But, instead of using a simple corporate bond index rate, sponsors would have to use a corporate bond yield curve that would take into account the timing of an employers future pension benefit payments.
The Treasury Department is making the proposal because it, Congress and industry groups agree that the 30-year Treasury benchmark is out of date.
The federal government has stopped issuing new 30-year Treasury bonds, and pension experts say the 30-year Treasury rates now prevailing in the bond resale market are far lower than the rates employers could earn by investing pension plan assets in high-grade corporate bonds.
Replacing the 30-year Treasury benchmark is essential because “too low a rate causes businesses to contribute more than is needed to meet future obligations, overburdening businesses at this early stage of the recovery,” the Treasury Department says in its proposal.