March 9, 2004
BB 04—27

Conferees on Interest Rate Replacement Legislation Expected to Work out Differences

Though the Senate-House of Representatives conference on interest rate reform legislation has not officially begun, negotiations are underway over a final bill to be sent to the President. The House and Senate versions of the Pension Funding Equity Act (H.R.3108) both contain a two-year replacement of the defunct 30-year Treasury bond rate with a composite rate based on conservatively invested long term corporate bonds. The Senate bill also includes two year relief from the amortization of investment losses for multiemployer pension plans and a partial deficit reduction contribution (DRC) relief provision that proposes a controversial "application process" for companies other than those in the airline and steel industries.

The final bill will likely draw elements from both the House and Senate bills. Senior Administration officials signaled a more unified message in a March 4 letter to Congress indicating that the application process for relief from the DRC and the multiemployer provisions, if included as currently proposed, could result in a recommendation by them to the President for a veto of the bill. The letter implies that DRC relief for airlines and steel would be acceptable to the Administration. Though Pension Benefit Guaranty Corporation (PBGC) representatives have indicated that they continue to prefer a bill that deals with the interest rate issue only, they have also noted that this might be very hard to achieve.

Reaction to the Administration letter has been mixed. Some Senate conferees maintain support for the multiemployer provision arguing that the current rules place too much pressure on the plans during economic downturns. Others have indicated a willingness to consider alternatives or trimming back the legislation. House Ways and Means Committee Chairman Bill Thomas (R-CA) continues to focus on the need to pass a bill that can be signed by the President and is arguing for a final measure more similar to the House-passed bill, citing the application process and multiemployer plan relief as primary causes for concern. House Education and the Workforce Committee Chairman John Boehner (R-OH), who also chairs the House-Senate conference negotiations on H.R. 3108, will likely call a meeting of the conferees this week. For more information contact Diann Howland, vice president, retirement policy or Lynn Dudley, vice president and senior counsel.

Nonqualified Deferred Compensation Proposals Being Given Further Consideration

Both House and Senate tax committee staffs are continuing to gather input and defining nonqualified deferred compensation provisions for legislation to be considered shortly. Proposals that would make substantial changes in the deferred compensation rules have been included in the international tax bill, the American Jobs Creation Act (H.R. 2896) in the House of Representatives and in National Employee Saving and Trust Equity Guarantee Act (NESTEG) in the Senate. The Senate version of the international tax bill does not currently contain deferred compensation provisions. The House and Senate nonqualified deferred compensation proposals are largely the same with respect to limits on access to, and timing of, amounts deferred. However, the Senate proposal also includes:

  • Restrictions on investment control by the participant;
  • Elimination of the ability to defer gain on stock options and other employer security-based compensation;
  • A repeal on the limitation on the ability of Treasury to issue guidance with respect to the timing of taxation of deferred compensation;
  • A one year wait period for corporate insiders receiving a distribution as a result of a change in control; and
  • Limitations on the tax benefits of corporate owned life insurance.

The international tax bills will likely be considered by the full House and Senate this month. It is possible that deferred compensation provisions could be added to the Senate international tax bill. The core proposals as included in NESTEG are expected to raise approximately $1 billion in tax revenue, and the proposal could be targeted for addition as a revenue raiser. Another risk is that even broader provisions could be added to the bill. In May 2003, the Senate added deferred compensation provisions to its version of the economic growth legislative package (The Jobs and Growth Tax Act, S. 2). Largely drawn from a proposal previously introduced in the House, these provisions would have had a dramatic impact on deferred compensation proposals including the essential elimination of the ability to use rabbi trusts. The revenue gain estimate was far more substantial at $4.4 billion. Even if nothing is added by the Senate, if the House and Senate both pass their international tax bills, deferred compensation will be subject to a congressional conference to resolve differences and a final compromise is almost certain to include limitations on deferred compensation.

It is very important that the Senate and House members hear your comments and concerns about the deferred compensation legislation. There are a number of issues the Council has identified with the legislation which can be used to facilitate your communication. For more information, contact Lynn Dudley, Council vice president & senior counsel, or Diann Howland, Council vice president, retirement policy, at (202) 289-6700.

SEC Proposes Mandatory 2% Redemption Fee, Issue Summary Available

As we reported in the March 5 Benefits Byte, the Securities and Exchange Commission (SEC) has issued a proposed rule which would impose a two percent mandatory redemption fee when mutual funds are sold within five days of being purchased. The Council has prepared a more detailed summary of the issue, now available on the Council Web site.

The proposed rule requests comments by May 10 on a number of issues detailed in our summary. The Council plans on submitting comments. To offer any suggestions, or for more information, contact Jan Jacobson, Council director, retirement policy, 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.