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Portfolio > Mutual Funds > Bond Funds

Council Compares Plans For Fixing Pension Rate Benchmark

By Staff Writer

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NU Online News Service, Aug. 14, 2003, 12:22 p.m. EDT – The American Benefits Council, Washington, has posted a chart by lawyers at Davis & Harman L.L.P., Washington, that compares current law with four major proposals for replacing the 30-year Treasury bond rate in pension calculations.

The proposals include two proposals from the House, a Senate proposal, and a Bush administration proposal that would require employers to use a yield curve.

Employers and their benefits advisors are pushing Congress to replace the 30-year Treasury bond rate as a pension benchmark as quickly as possible.

Because the United States has stopped issuing new 30-year bonds, the remaining 30-year bonds are popular and overall interest rates are very low, 30-year Treasury rates are now extremely low.

When rates are low, employers must assume that contributions to defined benefit pension plans will earn low rates. Low rate assumptions force employers to make bigger contributions to ensure that employees get the retirement benefits originally promised.

Employers and their advisors contend that conservatively managed portfolios of corporate bonds and government bonds other than the 30-year Treasury bonds pay much higher rates than the average 30-year Treasury yield.

The benefits council has posted the Davis & Harman chart at //www.americanbenefitscouncil.org/documents/30year_abcchart081103.pdf

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