The pension community is very concerned about the prospect of the PGBC hiking premiums up to 20 percent a year, as well as the prospect of not having a comprehensive pension reform bill enacted this year and resorting back to a 30-year Treasury
Companies have complained that the old formula, based on the interest rate paid by a 30-year Treasury
bond, made too many pension plans appear underfunded when they weren't.
For a two-year timeframe, the legislation will replace the 30-year Treasury
bond rate with a rate based on long-term corporate bonds.
The bill would provide a short-term, two-year pension funding fix to replace the current 30-year Treasury
bond interest rate that is used by many employers to calculate the amount of money they must set aside in their employee pension plans with a conservative corporate bond rate for two years through 2005.
8 without taking final action to replace the current 30-year Treasury
bond interest rate as the rate employers must use to calculate employee pension plan liabilities.
ERISA requires employers to use a variation of the 30-year Treasury
bond rate for these calculations; however, in 2001 Treasury stopped issuing the 30-year bond.
With all the drama and finality that the prestigious Wall Street Journal could muster, it declared this past May 3 that the reign of the 30-year Treasury
bond as the benchmark for pricing fixed-income securities in the $14.
Due to the bond shift, the bellwether 30-year Treasury
rose 20/32, or $6.
The rally in the bond market caused the 30-year Treasury
Note to drop to historic lows in early January of this year, and, since most lenders peg their interest rates to the bond yields, that means interest rates are also down.
has remained relatively unchanged.
Use of the 30-year Treasury
bond (no longer issued), which had been used as the basis for calculations for many years, proved to be a problem when long-term rates plunged in recent years.
3108 temporarily replaces the discontinued 30-year Treasury
bond interest rate used to calculate contribution levels of defined benefit plans with a rate based on a composite of long-term corporate bonds.