<nobr>Aug 4, 2003</nobr>

Chairman Gregg Introduces Pension Stability Act

Washington, DC - Late Thursday night Senator Judd Gregg, Chairman of the Senate Committee on Health, Education, Labor and Pensions introduced a bill to protect the pension plans millions of Americans are depending on when they retire. The Pension Stability Act (S. 1550) provides a responsible, immediate solution to the pension funding crisis facing our economy, while developing the glide path toward permanent solutions to major problems in the defined benefit system.

“The bill I have introduced is urgently needed, is fiscally responsible, and is designed to ensure the long term stability of the pension system. It establishes a five-year window of stability for pension funding and distributions, and it creates a bi-partisan, blue ribbon commission to develop legislative and regulatory solutions that will ensure that defined benefit plans remain the safest retirement savings program for workers.

“The Pension Stability Act gets us through the current pension funding crisis by shifting to a more stable benchmark for determining pension funding obligations. The bill provides the same two years of funding relief as proposed by the Bush Administration, and then lowers the interest rate to a more sustainable level for the remainder of this temporary fix. I believe this is the fiscally responsible thing to do.

“However, a temporary fix without a plan for addressing the underlying problems would be a disservice to the millions of workers who are relying on stable pensions to enhance their retirements. My bill keeps Congress’ feet to the fire and maintains public awareness of the problems by empanelling a blue ribbon commission to address all of the outstanding issues troubling our pension system. All issues will be on the table - the yield curve approach, smoothing rules, mortality tables and collar adjustments, disclosure obligations, and more. And the membership on the commission, drawn from government, the business and labor communities, and pension rights groups, is structured to ensure that all voices in the debate are heard and all parties have an opportunity to shape the solutions.”

1. Statutory Interest Rate: The Pension Stability Act replaces 30-year Treasury Bond rate with a composite corporate bond rate determined by the Treasury Department based on conservative indexes. In line with the Bush Administration proposal, for 2004 and 2005 the bill directs that plan sponsors may fund their plans at the rate of 105% of the composite corporate rate. In order to ensure adequate funding for pensions, the discount rate drops to 100% of the composite corporate rate for 2006-2008.
   
   
2. Sunset: After five years (through 2008), the minimum funding rate reverts to 105% of 30-year Treasury Bond rate. The five-year period is considered essential both for collective bargaining and corporate financial planning purposes. This longer period is necessary as well as in order to give Congress time to address the very many long term problems with defined benefit system. It is anticipated that a permanent solution to the funding, lump sum, and other issues will be enacted before the expiration of this temporary fix.
   
   
3. Rate for Lump Sum Distributions: Currently the interest rate for calculating individual lump sum distributions is the same as for determining pension funding levels. As the 30-year Treasury bond rate has declined, the calculations for lump sum distributions have become arbitrarily inflated. Although such distributions were originally intended to mirror the present value of an annuity, the effect of the low 30-year Treasury rate has been to create larger lump sum distributions than annuities, thus draining money out of the plans. Most analysts and policy experts agree that the rate should remain the same as for funding rules when a new benchmark for the 30-year Treasury bond rate is adopted. In order to avoid undue disruption of legitimate expectations, however, the bill continues current law for two years (2004 and 2005) and then begins to phase in the composite corporate rate in the next three years, based on the following schedule - 2006 - 20%; 2007 - 40%; 2008 - 60%. If no action is taken by Congress by the end of 2008, the rate for lump sum distributions reverts to the 30-year Treasury Bond rate.
   
   
4. Bipartisan Blue Ribbon Commission: The Pension Stability Act creates a commission to review all outstanding issues, including all of the issues that the Bush Administration has put on the table, and report to Congress at the end of 2006. Members of the Commission, appointed by the President and chairmen and ranking members of the relevant committees in the House and Senate, will be drawn from government, business, labor, and pension rights groups.
   

Public Summary

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