Private Pensions: Process Needed to Monitor the Mandated Interest Rate for Pension Calculations
Highlights
Employers with defined benefit plans have expressed concern that low interest rates were affecting the reasonableness of their pension calculations used to determine funding requirements under the Employee Retirement and Income Security Act of 1974 (ERISA). 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. This report provides information on (1) what characteristics of an interest rate make it suitable for determining current liability and lump-sum amounts; (2) what alternatives to the current rate might be considered; and (3) how using an alternative rate might affect plan participants, employers, and the Pension Benefit Guaranty Corporation (PBGC).
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To improve the timeliness of adjustments to the mandatory interest rate for pension calculations, the Congress should consider establishing a process for regulatory adjustments of the rate. | In the Pension Protection Act of 2006 (PPA), Congress established new statutory rates for funding purposes and determining PBGC premiums, but did not provide for any regulatory adjustment to these rates. There has been no change in status since the enactment of this law. | |
| The Congress should consider providing the cognizant regulatory agencies (Labor, Treasury, and PBGC) the authority under ERISA to jointly adjust the rate within certain boundaries as specified under the law. | In the Pension Protection Act of 2006 (PPA), Congress did not authorize the cognizant agencies to adjust rates. It is unlikely that this will be considered in the foreseeable future. The PPA of 2006 did not authorize any process for adjusting the new rate beyond the statutory basis for its establishment. No further changes to the law are anticipated. |