February 3, 2004
BB 04—13

In this issue:

  • Treasury Department Releases Proposal for Pension Funding Reform
  • Model Plan Sponsor Letter to SEC Available on Council Web Site
  • Senate Finance Approves COLI Language in Pension Bill

Treasury Department Releases Proposal for Pension Funding Reform

Continuing the Fiscal Year 2005 budget process, the Bush Administration has unveiled a series of proposals for pension funding reform. These proposals appear to be substantially identical to the package released by the Treasury Department in July 2003. The president's budget also indicates that the Administration is developing a plan for the comprehensive reform of the pension funding rules that will apparently be released at a later date.

The main elements of the Administration's package are:

  • For pension funding purposes, the 30-year Treasury bond interest rate would be replaced with a corporate bond rate for 2004 and 2005. There would then be a two-year phase-in to a yield curve-based interest rate, which would become fully effective in 2008.

  • The yield curve interest rate would also apply to the calculation of lump sums as of 2008, with a similar phase-in during 2006 and 2007.

  • If a plan sponsored by an employer with a below investment grade credit rating has assets that are less than 50% of termination liability, the plan would be frozen (i.e., no further benefit accruals would be allowed), and lump sums and other forms of accelerated benefit payments would be prohibited.

The Administration's proposals with respect to the disclosure of a plan's funded status were not included with the funding reform proposals, but were mentioned in very general terms in the Department of Labor's section of the budget.

For more information, contact Lynn Dudley, Council vice president and senior counsel, at (202) 289-6700.

Model Plan Sponsor Letter to SEC Available on Council Web Site

The Council has prepared a letter for plan sponsors to the Securities and Exchange Commission (SEC) with regard to its "hard 4 p.m. close" proposal. We are asking plan sponsors to send copies of this letter to the SEC at by February 6. The letter expresses concern about the possible detrimental effects this rule would have on employer-sponsored retirement plans and urges the SEC to consider the remedies contained in the Mutual Funds Integrity and Fee Transparency Act (H.R. 2420). H.R. 2420, passed by the House of Representatives in November 2003, would provide an exception for retirement plan administrators and other third party intermediaries to the 4:00 close rule.

The letter is available in HTML format or you may download a Microsoft Word version. Plan sponsors are encouraged to personalize the letter by inserting appropriate company information where appropriate, since the SEC tends to give more weight to customized letters.

For more background on this issue, please see the Council's January 20 Action Alert or the Council's talking points. For more information, contact Jan Jacobson, Council director, retirement policy, at 202-289-6700.

Senate Finance Approves COLI Language in Pension Bill

On February 3, the Senate Finance Committee completed its review of the corporate owned life insurance (COLI) provisions that were previously included in the National Employee Savings and Trust Equity Guarantee Act (NESTEG) but left unresolved when the NESTEG bill was considered by the Committee last fall. Ultimately, the Committee approved by nearly unanimous agreement (with the exception of Senator Jeff Bingaman (D-NM)) the COLI draft proposal that had been circulated in late January with slight modifications.

This generally bipartisan solution restricts the tax exclusion available to employers using COLI policies to the amount of premiums paid for the policies but includes significant exceptions if the individual covered is still an employee at the time of death, if the policy is considered "key-man" coverage or if the benefits are payable to the insured's family members. Notification and consent is required, and — per an amendment accepted by the Committee — the maximum face value of the policy must be included on the notice in advance of policy issuance. A second modification was included as well that would require the employer's annual report to the Internal Revenue Service to include a statement that all covered employees have received proper notification and have consented, or if this is not the case, to specify the number who have not consented.

As part of a general change to the effective dates of the provisions in NESTEG, the Finance Committee agreed to extend by one year the effective date of the nonqualified deferred compensation provision so that the proposals would generally be applicable to amounts deferred in taxable years beginning after December 31, 2004. For more information, 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.