II 

Calendar No. 425

108TH CONGRESS 

2D SESSION S. 2005

[Report No. 108–221] 

To temporarily replace the use by pension plans of the 30-year treasury 

bond rate with a composite corporate rate, and to establish a commission 

on defined benefit plans. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 9, 2004

Mr. GREGG, from the Committee on Health, Education, Labor, and Pensions, 

reported under authority of the order of the Senate of December 9, 2003, 

the following original bill; which was read twice and placed on the calendar 

A BILL

To temporarily replace the use by pension plans of the 30-

year treasury bond rate with a composite corporate rate, 

and to establish a commission on defined benefit plans.

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 Stability Act’’. 
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1 SEC. 2. TEMPORARY REPLACEMENT OF INTEREST RATE ON 

2 30-YEAR TREASURY SECURITIES WITH INTER3 EST RATE ON CONSERVATIVELY INVESTED 

4 LONG-TERM CORPORATE BONDS. 

5 (a) EMPLOYEE RETIREMENT INCOME SECURITY ACT

6 OF 1974.—

7 (1) DETERMINATION OF PERMISSIBLE

8 RANGE.—

9 (A) IN GENERAL.—Section 

10 302(b)(5)(B)(ii) of the Employee Retirement 

11 Income Security Act of 1974 (29 U.S.C. 

12 1082(b)(5)(B)(ii)) is amended—

13 (i) in subclause (I), by inserting ‘‘or 

14 (III)’’ after ‘‘subclause (II)’’; 

15 (ii) by redesignating subclause (II) as 

16 subclause (III); 

17 (iii) by inserting after subclause (I) 

18 the following new subclause: 

19 ‘‘(II) SPECIAL RULE FOR YEARS 2004, 

20 2005, AND 2006.—In the case of plan years 

21 beginning after December 31, 2003, and 

22 before January 1, 2007, the term ‘permis23 sible range’ means a rate of interest which 

24 is not above, and not more than 10 percent 

25 below, the weighted average of the conserv26 ative long-term corporate bond rates dur-
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1 ing the 4-year period ending on the last 

2 day before the beginning of the plan year. 

3 The Secretary, in consultation with the 

4 Secretary of the Treasury, shall, by regula5 tion, prescribe a method for periodically 

6 determining conservative long-term bond 

7 rates for purposes of this subclause. Such 

8 rates shall reflect the rates of interest on 

9 amounts conservatively invested in long10 term corporate bonds and shall be based 

11 on the use of 2 or more indices that are in 

12 the top 2 quality levels available reflecting 

13 average maturities of 20 years or more.’’; 

14 and 

15 (iv) in subclause (III), as so redesig16 nated—

17 (I) by inserting ‘‘or (II)’’ after 

18 ‘‘subclause (I)’’ the first place it ap19 pears; and 

20 (II) by striking ‘‘subclause (I)’’ 

21 the second place it appears and insert22 ing ‘‘such subclause’’. 

23 (2) DETERMINATION OF CURRENT LIABILITY.—

24 Section 302(d)(7)(C)(i) of such Act (29 U.S.C. 
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1 1082(d)(7)(C)(i)) is amended by adding at the end 

2 the following new subclause: 

3 ‘‘(IV) SPECIAL RULE FOR 2004, 

4 2005, AND 2006.—For plan years be5 ginning in 2004, 2005, or 2006, not6 withstanding subclause (I), the rate of 

7 interest used to determine current li8 ability under this subsection shall be 

9 the rate of interest under subsection 

10 (b)(5).’’. 

11 (3) CONFORMING AMENDMENT.—Section 

12 302(e) of such Act (29 U.S.C. 1082(e)) is amended 

13 by striking paragraph (7) and inserting the fol14 lowing: 

15 ‘‘(7) SPECIAL RULE FOR 2007.—For purposes of 

16 applying paragraphs (1) and (4)(B)(ii) for plan 

17 years beginning in 2007, current liability for the 

18 preceding plan year shall be redetermined using 105 

19 percent of the annual rate of interest on 30-year 

20 Treasury securities for such preceding plan year as 

21 the specific percentage determined under subsection 

22 (d)(7)(C)(i)(II).’’. 

23 (4) PBGC.—Section 4006(a)(3)(E)(iii) of such 

24 Act (29 U.S.C. 1306(a)(3)(E)(iii)) is amended by 

25 adding at 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, 2007, 

3 the annual yield taken into account under subclause 

4 (II) shall be the annual yield determined by the Sec5 retary on amounts conservatively invested in long6 term corporate bonds for the month preceding the 

7 month in which the plan year begins. For purposes 

8 of the preceding sentence, the Secretary, in consulta9 tion with the Secretary of the Treasury, shall, by 

10 regulation, prescribe a method for periodically deter11 mining conservative long-term bond rates. Such 

12 rates shall reflect the rates of interest on amounts 

13 conservatively invested in long-term corporate bonds 

14 and shall be based on the use of 2 or more indices 

15 that are in the top 2 quality levels available reflect16 ing average maturities of 20 years or more.’’. 

17 (b) INTERNAL REVENUE CODE OF 1986.—

18 (1) DETERMINATION OF PERMISSIBLE

19 RANGE.—

20 (A) IN GENERAL.—Section 

21 412(b)(5)(B)(ii) of the Internal Revenue Code 

22 of 1986 is amended—

23 (i) in subclause (I), by inserting ‘‘or 

24 (III)’’ after ‘‘subclause (II)’’;
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1 (ii) by redesignating subclause (II) as 

2 subclause (III); 

3 (iii) by inserting after subclause (I) 

4 the following new subclause: 

5 ‘‘(II) SPECIAL RULE FOR 2004, 

6 2005, AND 2006.—In the case of plan 

7 years beginning after December 31, 

8 2003, and before January 1, 2007, 

9 the term ‘permissible range’ means a 

10 rate of interest which is not above, 

11 and not more than 10 percent below, 

12 the weighted average of the conserv13 ative long-term corporate bond rates 

14 during the 4-year period ending on 

15 the last day before the beginning of 

16 the plan year. The Secretary of 

17 Labor, in consultation with the Sec18 retary, shall, by regulation, prescribe 

19 a method for periodically determining 

20 conservative long-term bond rates for 

21 purposes of this paragraph. Such 

22 rates shall reflect the rates of interest 

23 on amounts conservatively invested in 

24 long-term corporate bonds and shall 

25 be based on the use of 2 or more indi-
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1 ces that are in the top 2 quality levels 

2 available reflecting average maturities 

3 of 20 years or more.’’; and 

4 (iv) in subclause (III), as so redesig5 nated—

6 (I) by inserting ‘‘or (II)’’ after 

7 ‘‘subclause (I)’’ the first place it ap8 pears; and 

9 (II) by striking ‘‘subclause (I)’’ 

10 the second place it appears and insert11 ing ‘‘such subclause’’. 

12 (2) DETERMINATION OF CURRENT LIABILITY.—

13 Section 412(l)(7)(C)(i) of such Code is amended by 

14 adding at the end the following new subclause: 

15 ‘‘(IV) SPECIAL RULE FOR 2004, 

16 2005, AND 2006.—For plan years be17 ginning in 2004, 2005, or 2006, not18 withstanding subclause (I), the rate of 

19 interest used to determine current li20 ability under this subsection shall be 

21 the rate of interest under subsection 

22 (b)(5).’’. 

23 (3) CONFORMING AMENDMENT.—Section 

24 412(m) of such Code is amended by striking para25 graph (7) and inserting the following: 
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1 ‘‘(7) SPECIAL RULE FOR 2007.—For purposes of 

2 applying paragraphs (1) and (4)(B)(ii) for plan 

3 years beginning in 2007, current liability for the 

4 preceding plan year shall be redetermined using 105 

5 percent of the annual rate of interest on 30-year 

6 Treasury securities for such preceding plan year as 

7 the specific percentage determined under subsection 

8 (l)(7)(C)(i)(II).’’. 

9 (4) LIMITATION ON CERTAIN ASSUMPTIONS.—

10 Section 415(b)(2)(E)(ii) of such Code is amended by 

11 striking ‘‘the applicable interest rate (as defined in 

12 section 417(e)(3))’’ and inserting ‘‘5.5 percent’’. 

13 SEC. 3. COMMISSION ON DEFINED PENSION BENEFIT 

14 PLANS. 

15 (a) IN GENERAL.—Part 5 of subtitle B of title I of 

16 the Employee Retirement Income Security Act of 1974 

17 (29 U.S.C. 1131 et seq.) is amended by adding at the end 

18 the following: 

19 ‘‘SEC. 519. COMMISSION ON DEFINED PENSION BENEFIT 

20 PLANS. 

21 ‘‘(a) ESTABLISHMENT OF THE COMMISSION.—

22 ‘‘(1) ESTABLISHMENT.—There is established, 

23 subject to the Federal Advisory Committee Act, the 

24 Commission on Defined Benefit Pension 
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1 Plans (in this section referred to as the ‘‘Commis2 sion’’). 

3 ‘‘(2) MEMBERSHIP.—The Commission shall be 

4 composed of 13 members of whom—

5 ‘‘(A) 1 shall be the Secretary or their des6 ignee; 

7 ‘‘(B) 1 shall be the Secretary of the Treas8 ury or their designee; 

9 ‘‘(C) 1 shall be the Executive Director of 

10 the Pension Benefit Guaranty Corporation or 

11 their designee; 

12 ‘‘(D) 2 shall be appointed by the President 

13 from among members of the general public; 

14 ‘‘(E) 1 shall be appointed by the chairman 

15 of the Committee on Health, Education, Labor, 

16 and Pensions of the Senate; 

17 ‘‘(F) 1 shall be appointed by the ranking 

18 minority member of the Committee on Health, 

19 Education, Labor, and Pensions of the Senate; 

20 ‘‘(G) 1 shall be appointed by the chairman 

21 of the Committee on Finance of the Senate; 

22 ‘‘(H) 1 shall be appointed by the ranking 

23 minority member of the Committee on Finance 

24 of the Senate; 
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1 ‘‘(I) 1 shall be appointed by the chairman 

2 of the Committee on Education and the Work3 force of the House of Representatives; 

4 ‘‘(J) 1 shall be appointed by the ranking 

5 minority member of the Committee on Edu6 cation and the Workforce of the House of Rep7 resentatives; 

8 ‘‘(K) 1 shall be appointed by the chairman 

9 of the Committee on Ways and Means of the 

10 House of Representatives; and 

11 ‘‘(L) 1 shall be appointed by the ranking 

12 minority member of the Committee on Ways 

13 and Means of the House of Representatives. 

14 ‘‘(3) PERIOD OF APPOINTMENT; VACANCIES.—

15 Members shall be appointed for the life of the Com16 mission. Any vacancy in the Commission shall not 

17 affect its powers, but shall be filled in the same 

18 manner as the original appointment. 

19 ‘‘(4) QUORUM.—A majority of the members of 

20 the Commission shall constitute a quorum, but a 

21 lesser number of members may hold hearings. 

22 ‘‘(5) CHAIRPERSON AND VICE CHAIRPERSON.—

23 The Commission shall select a Chairperson and Vice 

24 Chairperson from among its members. 

25 ‘‘(b) DUTIES OF THE COMMISSION.—
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1 ‘‘(1) STUDY AND RECOMMENDATIONS.—The 

2 Commission shall conduct a thorough study of, and 

3 shall develop recommendations on, the following 

4 issues relating to defined benefit pension plans:

5 ‘‘(A) How to reform the defined benefit 

6 pension plan funding rules to increase partici7 pants’ benefit security, provide rational and 

8 predictable funding rules for employers, and 

9 protect the financial independence of the Pen10 sion Benefit Guaranty Corporation. 

11 ‘‘(B) The relevance and effectiveness of the 

12 current liability rules, and, if such rules are 

13 maintained, an analysis of alternative valuation 

14 measures for those rules, including the rationale 

15 for the measures as well as their strengths and 

16 weaknesses. 

17 ‘‘(C) The appropriate interest rates that 

18 should be used in valuing plan liabilities, the 

19 variable rate premium, and lump-sum benefits, 

20 including whether the rates proposed are trans21 parent, widely understood, publicly available, 

22 and resistant to manipulation. 

23 ‘‘(D) Whether the recommended interest 

24 rate would impact the investment policy of the 

25 pension trust along with an analysis of the im-
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1 pact on capital markets, the cost of maintaining 

2 a pension plan over the long term, and the com3 patibility of any effect on investment policy with 

4 the fiduciary requirements to diversify invest5 ments under this Act. 

6 ‘‘(E) The appropriate mortality assump7 tions that should be used in valuing plan liabil8 ities. 

9 ‘‘(F) Whether such assumptions should 

10 contain a collar adjustment or should otherwise 

11 be adjusted to reflect the workforce covered by 

12 the plan. 

13 ‘‘(G) A consideration of other actuarial as14 sumptions used in valuing plan liabilities. 

15 ‘‘(H) Whether the same interest rate 

16 should be used for purposes of both funding 

17 and lump sum benefits, including consideration 

18 of the effect on plan funding and other pur19 poses for which the interest rate is used if such 

20 rate is different for those purposes. 

21 ‘‘(I) The effect of the interest rate on par22 ticipants’ decisions whether to elect lump sum 

23 benefits. 
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1 ‘‘(J) The appropriate means of providing 

2 transition protection to participants in the 

3 event changes are enacted. 

4 ‘‘(K) Whether the same interest rate used 

5 for funding purposes should also apply for other 

6 purposes for which the rate of interest on 30-

7 year Treasury securities is currently used. 

8 ‘‘(L) The need to avoid volatile funding ob9 ligations and how to reform the law to avoid 

10 such volatility, including volatility attributable 

11 to the recent downturn in the equity markets 

12 and significant decrease in interest rates. 

13 ‘‘(M) The need for predictability, sim14 plicity, and transparency with respect to the 

15 calculation of funding obligations, and how to 

16 reform the law to achieve such goals. 

17 ‘‘(N) Effective means that would provide 

18 for additional funding in favorable economic pe19 riods, so that funding levels can withstand mar20 ket downturns without requiring large contribu21 tions during adverse economic conditions. 

22 ‘‘(O) How to design transition rules so 

23 that funding reforms do not cause short-term 

24 hardships for employers or employees. 
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1 ‘‘(P) How to ensure that revisions to fund2 ing obligations do not discourage employers 

3 from maintaining pension plans. 

4 ‘‘(Q) How to ensure that required disclo5 sure of funding information is material and rel6 evant without requiring disclosures that impose 

7 disclosure requirements that are unnecessarily 

8 burdensome, are misleading with respect to the 

9 funded status of an ongoing plan, or are not 

10 adjusted to reflect the size of the plan. 

11 ‘‘(R) Other funding and benefit reforms 

12 that would promote the creation and expansion 

13 of defined benefit plans. 

14 ‘‘(2) REPORT.—Not later than December 31, 

15 2005, the Commission shall submit a report to the 

16 appropriate committees of Congress containing a de17 tailed statement of the findings and conclusions of 

18 the Commission, together with its recommendations 

19 for such legislation as it considers appropriate (in20 cluding proposed legislative language to implement 

21 the recommendations). 

22 ‘‘(c) POWERS OF THE COMMISSION.—

23 ‘‘(1) HEARINGS.—The Commission may hold 

24 such hearings, sit and act at such times and places, 

25 take such testimony, and receive such evidence as 
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1 the Commission considers advisable to carry out this 

2 section. The Commission shall, to the maximum ex3 tent possible, use existing data and research prior to 

4 holding such hearings 

5 ‘‘(2) INFORMATION FROM FEDERAL AGEN6 CIES.—The Commission may secure directly from 

7 any Federal department or agency such information 

8 as the Commission considers necessary to carry out 

9 this section. Upon request of the Chairperson of the 

10 Commission, the head of such department or agency 

11 shall furnish such information to the Commission. 

12 ‘‘(3) POSTAL SERVICES.—The Commission may 

13 use the United States mails in the same manner and 

14 under the same conditions as other departments and 

15 agencies of the Federal Government. 

16 ‘‘(d) COMMISSION PERSONNEL MATTERS.—

17 ‘‘(1) COMPENSATION; TRAVEL EXPENSES.—

18 Each member of the Commission shall serve without 

19 compensation but shall be allowed travel expenses, 

20 including per diem in lieu of subsistence, at rates 

21 authorized for employees of agencies under sub22 chapter I of chapter 57 of title 5, United States 

23 Code, while away from their homes or regular places 

24 of business in the performance of services for the 

25 Commission.
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1 ‘‘(2) STAFF AND EQUIPMENT.—The Pension 

2 Benefit Guaranty Corporation shall provide all fi3 nancial, administrative, and staffing requirements 

4 for the Commission, including—

5 ‘‘(A) office space; 

6 ‘‘(B) furnishings; and 

7 ‘‘(C) equipment. 

8 ‘‘(e) TERMINATION OF THE COMMISSION.—The Com9 mission shall terminate 180 days after the date on which 

10 the Commission submits its report under subsection 

11 (b)(2).’’. 

12 (b) TABLE OF CONTENTS.—The table of contents for 

13 part 5 of subtitle B of title I of such Act (29 U.S.C. 1131 

14 et seq.) is amended by adding at the end the following:

‘‘519. Commission on Defined Pension Benefit Plans.’’. 

15 SEC. 4. CONGRESSIONAL ACTION. 

16 Not later than 120 days after receipt of a legislative 

17 proposal under subsection 519(b)(2) of the Employee Re18 tirement Income Security Act of 1974, as added by section 

19 3, Congress shall act on such proposal. 

20 SEC. 5. EFFECTIVE DATES. 

21 (a) IN GENERAL.—Except as provided in subsections 

22 (b) and (c), the amendments made by this Act shall apply 

23 to years beginning after December 31, 2003. 

24 (b) LOOKBACK RULES.—For purposes of applying 

25 subsections (l)(9)(B)(ii) and (m)(1) of section 412 of the 
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1 Internal Revenue Code of 1986, and subsections 

2 (d)(9)(B)(ii) and (e)(1) of section 302 of the Employee 

3 Retirement Income Security Act of 1974 to plan years be4 ginning after December 31, 2003, the amendments made 

5 by this section may be applied as if such amendments had 

6 been in effect for all years beginning before such date. 

7 (c) TRANSITION RULE FOR SECTION 415 LIMITA8 TION.—In the case of any participant or beneficiary re9 ceiving a distribution after December 31, 2003, and before 

10 January 1, 2005, the amount payable under any form of 

11 benefit subject to section 417(e)(3) of the Internal Rev12 enue Code of 1986 and subject to adjustment under sec13 tion 415(b)(2)(B) of such Code shall not, solely by reason 

14 of the amendment made to section 415(b)(2)(E)(ii), be 

15 less than the amount that would have been so payable had 

16 the amount payable been determined using the applicable 

17 interest rate in effect as of the last day of the last plan 

18 year beginning before January 1, 2004. 

19 (e) TERMINATION DATE.—The amendments made by 

20 this Act shall not apply to plan years beginning after De21 cember 31, 2006.
Calendar No. 425

108TH CONGRESS 

2D SESSION S. 2005

[Report No. 108–221] 

A BILL

To temporarily replace the use by pension plans of 

the 30-year treasury bond rate with a composite corporate rate, and to establish a commission on defined benefit plans. 

JANUARY 9, 2004

Read twice and placed on the calendar