Concern rises that move may delay action on pension reform
The Treasury Department’s decision to start issuing 30-year government bonds again is unlikely to restore the instrument to its former role as the benchmark security for measuring and funding pension obligations, according to an official of the American Benefits Council.
But, as reinforced by comments from the chairman of the House committee which recently reported out legislation reforming the rules dealing with corporate defined benefit plans, Treasury’s move may act, along with other issues, to delay action on such legislation this year.
The second coming of the 30-year bond may have a marginal benefit to insurers, according to a staff official at the American Council of Life Insurers and an official of Standard & Poor’s, the rating agency, by allowing them more flexibility in matching assets and liabilities.
Specifically, the Treasury Department announced on Aug. 3 that it would begin to reissue 30-year bonds early next year. Treasury said in a routine refunding announcement that the first auction of the 30-year bond will take place in the first quarter of 2006, with auctions to be held twice a year.
Sales of the so-called “long” bond ended in October 2001, which turned out to be the last year the government produced a budget surplus.
Timothy Bitsberger, the department’s assistance secretary for financial markets, said at a briefing that Treasury hopes to issue between $20 billion to $30 billion in 30-year bonds annually. The bonds were issued starting in 1977.
They formerly served as the index pension benefit fund managers and actuaries used to measure funding obligations to defined benefit plans.
Since the 30-year bond’s demise, an artificial rate has been created to provide some consistency for companies that want to evaluate the solvency of their defined benefit plans using the rate, but the rate favored by most pension fund managers is a four-year weighted corporate bond rate.