Administration Officials, Employers Spar Over Pension Benchmark Rate

By Staff Writer

October 14, 2003 at 08:00 PM

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NU Online News Service, Oct. 14, 2003, 5:25 p.m. EDT – Representatives for employers, think tanks, the Pension Benefit Guaranty Corp. and the U.S. Treasury trekked to Capitol Hill today for another hearing on the funding problems plaguing U.S. defined benefit pension plans.

The U.S. Senate Special Committee on Aging organized the hearing and titled it "America's Pensions: The Next Savings and Loan Crisis?".

One immediate challenge facing the pension industry is finding a replacement for the 30-year Treasury bond rate in pension calculations. Because 30-year bonds are popular and the federal government stopped issuing them two years ago, yields on 30-year bonds are even lower than rates on other types of notes and bonds.

Reductions in the pension benchmark interest rate cost employers dearly, by forcing employers to contribute more to make up for the drop in projected earnings on contributions.

Representatives for employers who attended today's hearing recommended that the government replace the interest rate benchmark used in pension calculations with a single benchmark rate based on rates on a bundle of high-rated corporate bonds.

Representatives for the Heritage Foundation and the Bush administration argued that the status of pension plans would be clearer if the government insisted that employers use a "yield curve," or a bundle of rates picked to mesh with the starting dates and ending dates of employers' pension benefit payment streams.

Written versions of the witnesses' testimony are on the Web at http://aging.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=35

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