The National Employee Savings and Trust Equity Guarantee Act (NESTEG) Introduces an Unknown and Untested Concept in the Form of the Yield Curve

September 17, 2003

TO THE MEMBERS OF THE SENATE COMMITTEE ON FINANCE:

On behalf of the U.S. Chamber of Commerce, the world's largest business federation representing over three million businesses and organizations of every size, sector and region, I write in regard to the National Employee Savings and Trust Equity Guarantee Act (NESTEG), currently scheduled for markup by the Committee on Wednesday, September 17, 2003.

The U.S. Chamber appreciates the Committee's attention to this important issue and stresses the paramount and urgent need to approve an immediate and realistic replacement for the obsolete 30-year Treasury bond. Under the current circumstances, employers are uncertain about their future funding obligations and are, therefore, uncertain about their ability to maintain defined benefit plans. Unfortunately, rather than providing a stable and certain replacement for the 30-year Treasury rate, NESTEG introduces an unknown and untested concept in the form of the yield curve. In addition, the bill does not provide all of the details necessary for plan sponsors to implement this concept. These details are to be provided later in the form of Treasury regulations to be subsequently issued by the Secretary of Treasury.

In addition, NESTEG introduces other changes to pension funding, defined contribution plans, stock options, and plan administration. These are changes that do not require immediate attention and, more importantly, do not have widespread support. The 30-year Treasury rate must be replaced immediately. Including these extraneous provisions will slow the process and could possibly bring it to a complete halt. Without an immediate replacement of the 30-year Treasury rate, certain plan sponsors will be forced to freeze or terminate their plans, leaving many workers without these vital retirement benefits. Instead, we advocate replacing the 30-year Treasury bond rate with a conservative, long-term corporate bond rate for a period of significant duration, as set forth in S. 1550, the Pension Stability Act, introduced by Sen. Judd Gregg (R-NH).

We thank the Committee for moving quickly on this important issue and look forward to working with you to protect America's employer-provided retirement system.

Sincerely,

R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce