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Businesses overwhelmed by their pension plan obligations got some temporary relief this spring. In April President George Bush signed a law that lets companies make lower contributions for two years. But now the clock is ticking for Congress to come up with a more permanent solution. “There is growing interest and the need for more fundamental reform of the pension system,” says Bruce Josten, executive vice president of the U.S. Chamber of Commerce. “We’re still going to have some funding challenges going forward. This is not a holiday from making contributions.” Pension-funding calculations are generally based on the 30-year Treasury bond interest rate. Under the new law, a special corporate bond rate will be used for the next two years. The change will enable companies to contribute $80 billion less to their pension plans. Several steel and airline companies will also get some extra relief. During the law’s first year, they will only have to pay 20 percent of the catch-up payments � or “deficit reduction contributions” � that become mandatory when a pension plan falls below 90 percent of its required funding. The companies would pay 40 percent of the catch-up payments in the law’s second year. The favor was necessary because airline and steel companies have “been suffering from a combination of forces, including September 11, the unusual high price of fuel, and the Iraq hostilities,” says Gary Ford, an attorney at Groom Law Group, an employee benefits boutique in Washington, D.C. “Absent pension-funding relief, many of them would have been faced with punitive pension-funding obligations at exactly the wrong time,” adds Ford. As Congress starts to work on permanent pension reform, the question remains how much relief will be needed in the future. “There’s a whole range of things that the [Bush] administration is working on,” according to Kent Mason, an attorney at Davis & Harman in Washington. “We believe one component of broader funding reform is to make the interest rate fix permanent,” Mason says. “But the administration may have a different perspective.” More specifically, Mason says that the administration may resurrect the idea of using a yield curve to calculate pension liabilities instead of staying with the corporate bond rate. Under this scenario, a different discount rate would be used for every year in the future, instead of a fixed single rate, explains Mark Beilke, director of employee benefits research at Milliman USA, an actuarial consulting firm. Yield-curve opponents claim the concept is untested and could result in companies moving pension plans out of the stock market. But supporters contend that a fixed rate typically undervalues liabilities due in the near term while overvaluing liabilities due later. The reform debate will give the Pension Benefit Guaranty Corp. – a quasi-federal agency that insures corporate pension plans – more of an opportunity to push its case. The PBGC supported switching to a corporate bond rate for two years, but firmly opposed the extra relief for airline and steel companies. At issue for the PBGC is that it went from a surplus to an $11 billion deficit in only a couple of years, primarily due to the large numbers of bankruptcies in those two industries.

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