January 15, 2004
In this issue:
- Challenges Ahead for Interest Rate Replacement Legislation
Challenges Ahead for Interest Rate Replacement Legislation
The Senate is scheduled to consider interest rate replacement when it returns the week of January 19, following consideration of the government's omnibus funding measure. As we have previously reported, the Senate left for the holidays without completing its work on the interest rate legislation but agreed by unanimous consent to a motion setting forth the process for dealing with the issue this year.
Under the agreement, the Senate will consider the House-passed Pension Funding Equity Act (H.R. 3108), which would simply replace the 30-year Treasury rate with the corporate bond rate for two years (through 2005). When the Senate takes up H.R. 3108, amendments will be limited to three issues: the replacement rate itself, deficit reduction contribution (DRC) , and multiemployer plan funding relief. Moreover, only seven amendments would be in order: a manager's amendment and 3 amendments each by the Republicans and Democrats.
It is our understanding that the manager's amendment is intended to deal primarily with important technical clean-up to H.R. 3108, but proponents of DRC relief have indicated they will pursue adding the DRC relief to the managers' amendment. If that fails they will offer the DRC relief proposal as one of the separate amendments. It is likely that proponents of multiemployer plan relief will also seek to have their proposal added in the managers' amendment as well. There is no time limit on the debate and no certain date by which the bill must be brought up. If the efforts to add these proposals prove as controversial as we expect, it could slow the legislative process down again. In addition, sources have indicated that the Administration continues to strongly support a yield curve for the permanent replacement, and though the Administration has indicated a willingness to accept legislation containing a limited DRC relief provision, it generally would prefer to couple any such relief with overall stricter funding rules.
On a related note, on January 15 the Pension Benefit Guaranty Corporation (PBGC) announced in its annual report that the agency's deficit rose to $11.2 billion as of the end of fiscal year 2003. This figure represents an increase from 2002's $3.6 billion deficit and a nearly $19 billion turnaround from its $7.7 billion surplus in 2001.The PBGC's announcement will no doubt raise additional concerns about providing DRC or multiemployer plan relief and replacing the 30-year rate with the corporate bond rate even temporarily.
Congressional sources have indicated that it will be critical that the Senate hear from plan sponsors if there is a real chance of succeeding in passing interest rate replacement legislation early in this year. The Council has received reports that some support for this legislation is waning and a perception is developing that delaying action or providing a replacement rate for a shorter period (e.g., only one year) would not be problematic. We urge you to contact your senators today to express to them the importance of replacing the 30 year interest rate immediately. Senators Olympia Snowe (R-ME), Craig Thomas (R-WY), Gordon Smith (R-OR) and Don Nickles (R-OK) have been identified as senators that need further convincing about the need for immediate action, though all Senators need to be contacted. The Council has a Capitol Connection letter available to facilitate your communication with your Senators, but phone calls are encouraged. We have also prepared a set of talking points on why the corporate bond rate is an appropriate replacement rate for your use in speaking with your senators or their staffs.
Contact information for the senators listed above is as follows:
- Sen. Snowe — 202-224-5344
- Sen. Thomas — 202-224-6441
- Sen. Smith — 202-224-3753
- Sen. Nickles — 202-224-5754
If you have any questions or need additional information please contact Lynn Dudley, Council vice president and senior counsel, at 202-289-6700
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.