<nobr>Mar 11, 2003</nobr>

ERIC Urges Senate Finance Committee To Approve Pension Funding Proposal

Washington, DC - The ERISA Industry Committee (ERIC) warned Members of the Senate Committee on Finance that unless Congress promptly replaces the now defunct 30-year Treasury bond rate, employers that voluntarily sponsor defined benefit plans will see spikes in their contribution requirements that are not necessary for sound funding. Many plan sponsors will be forced to divert money that otherwise would have been spent to build new plants, buy equipment, pay for research and development, and support jobs that would strengthen the economy. Many other companies may be forced to lay off workers. The costs for large companies resulting from the artificial interest rates alone could be as great as $150 million per year or more.

The warning was presented by ERIC Chairman Christopher O’Flinn (Vice President, Corporate Human Resources, AT&T) at a March 11 hearing before the full Senate Committee on Finance. He described the problems major employers face with funding their pension plans due mainly to the artificially low interest rate of the 30-year Treasury bond on which the current funding of defined benefit plans is statutorily based. Treasury stopped issuing 30 year bonds in 2001 causing their immediate and continuing devaluation.

“If we leave only one message with the Committee today, it should be that the continued absence of a permanent and appropriate discount rate in the law is tremendously damaging to the employer sponsors of DB plans and to their stockholders and employees,” said O’Flinn in his remarks. “This damage will affect the ability of these firms to contribute to the economic recovery, maintain their DB plans, and enhance employment opportunities.”

Mr. O'Flinn called on Congress to immediately pass legislation proposed by ERIC that would replace the defunct 30-year Treasury bond rate with a composite rate of stable, high quality, long-term corporate bond indices that would be overseen by the Treasury Department.

Mr. O'Flinn also urged that Congress approve ERIC's proposals to coordinate the new composite rate with related mortality assumptions, phase in the new rate for lump sum calculations, and reduce the frequency with which employers are forced to bounce in and out of increased funding and quarterly contribution requirements.

“ERIC’s proposal would not change the comprehensive ERISA funding regimen,” said O’Flinn. “It would make a focused correction to the mandatory interest rate required to be used for minimum funding, PBGC premium, and lump sum calculation purposes resulting in increased certainty and support for defined benefit plans.”

The ERISA Industry Committee (ERIC) is a non-profit association committed to the advancement of employee retirement, health, and welfare benefit plans of America's largest employers and represents exclusively the employee benefits interests of major employers. ERIC's members provide comprehensive retirement, health care coverage and other economic security benefits directly to some 25 million active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

Click here for a copy of Mr. O'Flinn's oral remarks.

Click here for a copy of ERIC's written testimony.

Media Contact: Doug Baj, Director of Communications, ERISA Industry Committee, (202)789-1400, dbaj@eric.org.

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