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U.S. Senate Passes Pension Funding Relief in Highway Bill

The U.S. Senate on March 14 approved allowing corporate defined benefit pension plans to base their contribution calculations on interest rates over a 25-year average rather than current interest rates, which have sent contribution payments soaring.

March 16, 2012
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The U.S. Senate on March 14 approved allowing corporate defined benefit pension plans to base their contribution calculations on interest rates over a 25-year average rather than current interest rates, which have sent contribution payments soaring.

The bipartisan pension funding interest-rate reform provision was attached to a highway funding bill that the Senate approved 74-22.

If the House approves a similar measure, the change would allow companies beginning in 2012 to use a segment discount rate within 10 percent of a 25-year average of prior segment rates.

The relief diminishes somewhat in subsequent years, with the 10 percent corridor increasing 5 percentage points per year until it hits a permanent rate of 30 percent in 2016.

"It smoothes out a company's funding obligation so it is less sensitive to abnormally high or low interest rates that distort a plan's financial condition either too positively or too negatively," said James Klein, American Benefits Council president, in a written statement.

"It will be helpful for employers, particular in the short term, but this provision is more temporary in nature," said council spokesman Jason Hammersla. "We're very happy but we're going to push for further reform" to make interest-rate stability permanent.

Hazel Bradford writes for Pensions & Investments, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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