<nobr>Oct 8, 2003</nobr>

ERIC Hails Passage of House Pension Funding Bill

The ERISA Industry Committee (ERIC) today praised the U.S. House of Representatives for passage of the Pension Funding Equity Act (H.R.3108) that replaces the defunct 30-year Treasury bond rate used for calculating pension liabilities with a composite rate of high quality long term corporate bonds. The passage of this legislation is an important first step toward preserving the nation’s pension system.

“We are gratified that the House has acknowledged the urgency in enacting a replacement for the low 30-Year Treasury interest rate by passing this legislation today,” said Mark Ugoretz, president of ERIC. “But this is only the first step. We urge the Senate to quickly approve comparable legislation that will enable companies to maintain these vital retirement plans, which provide a secure retirement benefit to American workers.”

ERIC warns that if Congress does not act before year end, many companies that voluntarily sponsor pension plans for their employees will become subject to inflated cash contributions into their pension plans, thereby jeopardizing their ability to maintain the plans for their employees.

Under current law, pension plans are required to use the 30-year Treasury bond interest rate to calculate their liabilities. When the Treasury Department discontinued the bond in 2001, the bond’s rate dropped precipitously relative to other interest rates. The required use of an extraordinarily low interest rate artificially inflates pension liabilities and triggers requirements to contribute large amounts of cash to a company’s pension plan.

Congress recognized this problem in 2002 when it enacted a temporary (but artificial) fix that allowed companies to use a rate of 120% of the 30-year bond rate for plan years 2002 and 2003. The enactment of H.R.3108 will prevent the required interest rate from returning in 2004 to the depressed rate under prior law.

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