WASHINGTON — A permanent replacement for 30-year Treasury bonds as the benchmark for calculating pension liabilities and lump-sum payments probably won't be approved by legislators before the 2004 presidential election.
With a temporary law letting employers use a higher interest rate to calculate liabilities expiring Dec. 31, the House of Representatives last week passed a measure, good for two years, that would save employers an estimated $26 billion in contributions over the course of the two years, using a smoothed rate on conservatively invested long-term corporate bonds.
Employers initially hoped for a permanent replacement for the 30-year Treasury bond this year, but now are regrouping to ensure the Senate passes a similar, temporary measure in the few remaining weeks of Congress' 2003 session.
The Bush administration and tax-writing committees in the two chambers of Congress broadly disagree over what the permanent benchmark should be.
Although Reps. Rob Portman, R-Ohio, and Benjamin Cardin, D-Md., members of the House Ways and Means Committee, backed letting employers permanently switch to an index of corporate bonds for valuing liabilities, the Bush administration came up with a different approach in July, proposing that employers be allowed to use the average interest rate on corporate bonds only for two years before switching to a yield curve of corporate bonds tied to the demographics of each individual plan's work force. Employers, worried that proposal could force manufacturers with mature work forces to contribute more than under current law, convinced House members to reject that approach.
On July 18, the House Ways and Means Committee passed the Portman-Cardin bill, the Pension Preservation and Savings Expansion Act. But on Sept. 17, the Senate Finance Committee endorsed legislation that would give employers three years to get back on their feet, before adopting the administration's approach. With the two committees deadlocked on a permanent replacement for the benchmark, corporate efforts are now focused on getting a stopgap measure enacted by year's end.