House Approves Temporary Pension Benchmark Fix

But, in the short run, Klein says, “H.R. 3108 requires no further changes to the defined benefit regulatory system and provides a highly accurate and transparent method of funding these plans for the next two or three years.”

The United States began using the 30-year Treasury bond rate as a benchmark back when big budget deficits forced the government to issue large quantities of 30-year bonds every year.

Because the U.S. stopped issuing new 30-year Treasurys in 2001, the remaining 30-year bonds are popular and 30-year Treasury rates are now extremely low.

Employers and pension industry groups are pushing Congress to replace the 30-year Treasury bond rate as a pension benchmark as quickly as possible, because the low benchmark rate assumptions force employers to make bigger contributions.

Bush administration officials have pushed for employers to replace the old benchmark with a “yield curve” approach that would use different interest rates for pension benefits scheduled to be paid at different dates in the future.

Employers and pension groups argue that the yield curve approach would be too complicated, but administration officials say that the approach should be relatively simple for employers equipped with computers, and that using a yield curve approach would be more accurate than using a single blended interest rate.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.