Pension Coalition Letter
September 15, 2003
To All Members of the Senate Finance Committee and Senators McConnell, Daschle & Reid:
On behalf of the thousands of employers that we represent, thank you for your efforts to act on an appropriate replacement for the defunct 30-year Treasury bond interest rate used for pension calculations. This is a problem that, if not corrected immediately, could impede our nation's nascent economic recovery and threaten the retirement security of millions of American workers.
At the same time, we are extremely concerned about reports that the Senate Finance Committee may consider, in the near future, pension legislation to address the interest rate issue that would include new, controversial and untested provisions that could slow down legislative action.
The most pressing issue currently faced by employers that sponsor defined benefit pension plans is the need to replace the 30-year Treasury bond with a rational interest rate that can be implemented immediately, is widely understood and will provide desperately needed stability over time. Providing a rational measure of liabilities is not "relief," it will require appropriate and sound funding of all plans.
The inflated financing and premium requirements faced by these companies —frequently hundreds of millions of dollars—will siphon cash from other important business needs, affecting capital investment and the companies' ability to retain and create jobs. The burden of these requirements already is forcing employers to freeze, or even terminate, their defined benefit plans.
For more than a year, the business community, pension groups, the AFL-CIO and members of Congress in both parties have urged policy makers to replace the "broken" 30-year Treasury bond rate with a composite rate of high-quality, long-term corporate bond indices. A corporate bond rate is an appropriate measure of pension liability that is readily available, easy to administer, accurate for on-going obligations, immune from manipulation and transparent.
As you begin to consider important pension legislation, we strongly urge you to support replacing the 30-year year Treasury rate with a long-term corporate bond rate as soon as possible. The need for action is urgent. Individual companies currently are using this interest rate for strategic planning purposes for next year.
Longer-term, we recognize the value of taking a closer look at current rules for defined benefit plans and welcome the opportunity to work with you on these issues. However, we urge you to avoid acting on new proposals that have not been fully vetted, an approach that could result in unnecessary complexity and unintended consequences. We are particularly concerned that the Committee would, at this time, mandate moving in the future to a yield curve discount rate – imposing on plans and participants a rule that is, as yet, undeveloped and untested. Moreover, Congress has no clear information on the implication of switching to this approach.
The companies we represent are firmly committed to the retirement security of their workers. Thank you in advance for moving to address this important issue. It is critical, however, to avoid provisions that would make it more difficult for employers to provide important retirement benefits or that would slow down legislative action and thus impede the current economic recovery. We welcome the opportunity to work with the Committee to advance a solution to this problem.
American Benefits Council
The Business Roundtable
Committee on Investment of Employee Benefit Assets
ERISA Industry Committee
Financial Executives International
National Association of Manufacturers
U.S. Chamber of Commerce