108TH CONGRESS

1ST SESSION H. R. 3108

AN ACT

To amend the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code

of 1986 to temporarily replace the 30-yearTreasury rate with a rate based on long-termcorporate bonds for certain pension plan fundingrequirements and other provisions, and for otherpurposes.

108TH CONGRESS

1ST SESSION H. R. 3108

AN ACT

To amend the Employee Retirement Income Security Act

of 1974 and the Internal Revenue Code of 1986 to

temporarily replace the 30-year Treasury rate with a

rate based on long-term corporate bonds for certain pension plan funding requirements and other provisions, and

for other purposes.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Pension Funding Eq5 uity Act of 2003’’.

6 SEC. 2. FINDINGS; SENSE OF CONGRESS.

7 (a) FINDINGS.—The Congress finds the following:

8 (1) The defined benefit pension system has re9 cently experienced severe difficulties due to an un10 precedented economic climate of low interest rates,

11 market losses, and an increased number of retirees.

12 (2) The discontinuation of the issuance of 30-

13 year Treasury securities has made the interest rate

14 on such securities an inappropriate and inaccurate

15 benchmark for measuring pension liabilities.

16 (3) Using the current 30-year Treasury bond

17 interest rate has artificially inflated pension liabil18 ities and therefore adversely affected both employers

19 offering defined benefit pension plans and working

20 families who rely on the safe and secure benefits

21 that these plans provide.

22 (4) There is consensus among pension experts

23 that an interest rate based on long-term, conserv24 ative corporate bonds would provide a more accurate

25 benchmark for measuring pension plan liabilities.
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1 (5) A temporary replacement for the 30-year

2 Treasury bond interest rate should be enacted while

3 the Congress evaluates permanent and comprehen4 sive funding reforms.

5 (b) SENSE OF CONGRESS.—It is the sense of the

6 Congress that the Congress must ensure the financial

7 health of the defined benefit pension system by working

8 to promptly implement—

9 (1) a permanent replacement for the pension

10 discount rate used for defined benefit pension plan

11 calculations, and

12 (2) comprehensive funding reforms aimed at

13 achieving accurate and sound pension funding to en14 hance retirement security for workers who rely on

15 defined pension plan benefits, to reduce the volatility

16 of contributions, to provide plan sponsors with pre17 dictability for plan contributions, and to ensure ade18 quate disclosures for plan participants in the case of

19 underfunded pension plans.

20 SEC. 3. TEMPORARY REPLACEMENT OF 30-YEAR TREASURY

21 RATE.

22 (a) EMPLOYEE RETIREMENT INCOME SECURITY ACT

23 OF 1974.—

24 (1) DETERMINATION OF PERMISSIBLE

25 RANGE.—
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1 (A) IN GENERAL.—Clause (ii) of section

2 302(b)(5)(B) of the Employee Retirement In3 come Security Act of 1974 is amended by re4 designating subclause (II) as subclause (III)

5 and by inserting after subclause (I) the fol6 lowing new subclause:

7 ‘‘(II) SPECIAL RULE FOR YEARS 2004

8 AND 2005.—In the case of plan years be9 ginning after December 31, 2003, and be10 fore January 1, 2006, the term ‘permis11 sible range’ means a rate of interest which

12 is not above, and not more than 10 percent

13 below, the weighted average of the rates of

14 interest on amounts conservatively invested

15 in long-term corporate bonds during the 4-

16 year period ending on the last day before

17 the beginning of the plan year. Such rates

18 shall be determined by the Secretary on

19 the basis of one or more indices selected

20 periodically by the Secretary, and the Sec21 retary shall make the permissible range

22 publicly available.’’.

23 (B) SECRETARIAL AUTHORITY.—Subclause

24 (III) of section 302(b)(5)(B)(ii) of such Act, as
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1 redesignated by subparagraph (A), is

2 amended—

3 (i) by inserting ‘‘or (II)’’ after ‘‘sub4 clause (I)’’ the first place it appears, and

5 (ii) by striking ‘‘subclause (I)’’ the

6 second place it appears and inserting

7 ‘‘such subclause’’.

8 (C) CONFORMING AMENDMENT.—Sub9 clause (I) of section 302(b)(5)(B)(ii) of such

10 Act is amended by inserting ‘‘or (III)’’ after

11 ‘‘subclause (II)’’.

12 (2) DETERMINATION OF CURRENT LIABILITY.—

13 Clause (i) of section 302(d)(7)(C) of such Act is

14 amended by adding at the end the following new

15 subclause:

16 ‘‘(IV) SPECIAL RULE FOR 2004

17 AND 2005.—For plan years beginning

18 in 2004 or 2005, notwithstanding

19 subclause (I), the rate of interest used

20 to determine current liability under

21 this subsection shall be the rate of in22 terest under subsection (b)(5).’’.

23 (3) PBGC.—Clause (iii) of section

24 4006(a)(3)(E) of such Act is amended by adding at

25 the end the following new subclause:
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1 ‘‘(V) In the case of plan years beginning after

2 December 31, 2003, and before January 1, 2006,

3 the annual yield taken into account under subclause

4 (II) shall be the annual yield determined by the Sec5 retary of the Treasury on amounts conservatively in6 vested in long-term corporate bonds for the month

7 preceding the month in which the plan year begins.

8 For purposes of the preceding sentence, the Sec9 retary of the Treasury shall determine such yield on

10 the basis of one or more indices selected periodically

11 by the Secretary, and the Secretary shall make such

12 yield publicly available.’’.

13 (b) INTERNAL REVENUE CODE OF 1986.—

14 (1) DETERMINATION OF PERMISSIBLE

15 RANGE.—

16 (A) IN GENERAL.—Clause (ii) of section

17 412(b)(5)(B) of the Internal Revenue Code of

18 1986 is amended by redesignating subclause

19 (II) as subclause (III) and by inserting after

20 subclause (I) the following new subclause:

21 ‘‘(II) SPECIAL RULE FOR YEARS

22 2004 AND 2005.—In the case of plan

23 years beginning after December 31,

24 2003, and before January 1, 2006,

25 the term ‘permissible range’ means a
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1 rate of interest which is not above,

2 and not more than 10 percent below,

3 the weighted average of the rates of

4 interest on amounts conservatively in5 vested in long-term corporate bonds

6 during the 4-year period ending on

7 the last day before the beginning of

8 the plan year. Such rates shall be de9 termined by the Secretary on the

10 basis of one or more indices selected

11 periodically by the Secretary, and the

12 Secretary shall make the permissible

13 range publicly available.’’.

14 (B) SECRETARIAL AUTHORITY.—Subclause

15 (III) of section 412(b)(5)(B)(ii) of such Code,

16 as redesignated by subparagraph (A), is

17 amended—

18 (i) by inserting ‘‘or (II)’’ after ‘‘sub19 clause (I)’’ the first place it appears, and

20 (ii) by striking ‘‘subclause (I)’’ the

21 second place it appears and inserting

22 ‘‘such subclause’’.

23 (C) CONFORMING AMENDMENT.—Sub24 clause (I) of section 412(b)(5)(B)(ii) of such
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1 Code is amended by inserting ‘‘or (III)’’ after

2 ‘‘subclause (II)’’.

3 (2) DETERMINATION OF CURRENT LIABILITY.—

4 Clause (i) of section 412(l)(7)(C) of such Code is

5 amended by adding at the end the following new

6 subclause:

7 ‘‘(IV) SPECIAL RULE FOR 2004

8 AND 2005.—For plan years beginning

9 in 2004 or 2005, notwithstanding

10 subclause (I), the rate of interest used

11 to determine current liability under

12 this subsection shall be the rate of in13 terest under subsection (b)(5).’’.

14 (c) EFFECTIVE DATE.—

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by this section

17 shall apply to years beginning after December 31,

18 2003.

19 (2) LOOKBACK RULES.—For purposes of apply20 ing subsections (l)(9)(B)(ii) and (m)(1) of section

21 412 of the Internal Revenue Code of 1986 and sub22 sections (d)(9)(B)(ii) and (e)(1) of section 302 of

23 the Employee Retirement Income Security Act of

24 1974 to plan years beginning after December 31,

25 2003, the amendments made by this section may be
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1 applied as if such amendments had been in effect for

2 all years beginning before such date.

Passed the House of Representatives October 8,

2003.

Attest:

Clerk.