An adjustment to defined benefit funding requirements sought by industry is part of the mix as Congress works on legislation that would both reauthorize highway funding programs and freeze student-loan interest rates.
Under the language currently being proposed, companies would be able to use the 25-year corporate bond average when determining the discount rate used to appropriately fund defined benefit plans, according to Joe Lieber, an analyst at Washington Analysis.
Under current law, companies use the last two-year corporate bond average when determining their discount rate. Consequently, companies’ discount rates will rise, meaning smaller pension contributions and, therefore, higher net income, according to Lieber.
The defined benefit provision is being used to offset the cost of freezing the current student loan rate loan rate at 3.4%. An agreement on the student loan issue was announced late Tuesday by Sen. Harry Reid, D-Nev., and Sen. Mitch McConnell, R-Ken., Senate majority and minority leaders, respectively.
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Under current law, the rate would go to 6.8% as of July 1 unless Congress takes action. The provision has bipartisan support and raises $9.5 billion over ten years, which will help defray the cost of the highway or student loan bill.
The American Benefits Council, which represents companies of all sizes on pension and retirement benefits issues, has been among the trade groups and companies pushing for the funding change because it could positively impact jobs.