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Portfolio > Mutual Funds > Bond Funds

Bush Signs Pension Relief Bill

By Allison Bell

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NU Online News Service, April 12, 2004, 5:53 p.m. EDT – President Bush signed a bill Saturday that will help hold down costs for employers that sponsor defined benefit pension plans.[@@]

The bill, H.R. 3108, lets defined benefit plan sponsors temporarily replace the 30-year Treasury rate benchmark with a benchmark based on the rate for investment-grade corporate bonds.

President Bush signed the bill in time for employers to apply it to their first-quarter pension contributions, which are due April 15.

The law based on the bill is set to expire in 2 years. Congress could make the act permanent or come up with another approach for calculating employers’ pension obligations.

Interest rates are much lower now than they were between the early 1970s and the mid-1990s. Because 30-year bonds are popular and the federal government stopped issuing them 2 years ago, yields on 30-year bonds are even lower than rates on other types of notes and bonds.

When the official pension contribution benchmark rate falls, employers must contribute more to their pension plans to meet federal plan funding requirements.

The American Benefits Council, Washington, and other employer groups have argued that the government ought to let employers lower required contributions by adopting a corporate bond index as the standard.

“Failure to enact H.R. 3108 will cause sponsors of both union and white-collar pension plans to be saddled with artificially inflated pension obligations ? sometimes millions of dollars in excess of what they should otherwise be contributing to their plans,” the council argued in a statement before Bush signed the bill.

Some consumer groups have argued that a shift to a corporate bond index will increase the likelihood that plans will collapse, but a large labor group, the International Brotherhood of Teamsters, Washington, complains that the bill fails to provide rate relief for the multi-employer plans that cover many union members.

The House approved the conference report, or compromise version of the bill, April 2, and the Senate approved the conference report April 9.

Links to the text of the bill and information about the bill are on the Web at http://thomas.loc.gov/cgi-bin/bdquery/z?d108:h.r.03108:

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