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A Senate panel has approved a controversial bill that imposes a three-year moratorium on contributions to underfunded pension plans. The legislation threatens to further undermine cash-strapped Pension Benefit Guaranty Corp., the quasi-governmental agency that guarantees payment of basic pension benefits. The bill, the “National Employee Savings and Trust Equity Guarantee Act,” also replaces a 30-year-old requirement that used Treasury bond rates to calculate pension plan contributions. Its successor is a yield curve formula to be phased in over five years. “We did not find this an easy thing to do,” Senate Finance Chairman Sen. Charles Grassley, R-Iowa, admitted at a Wednesday meeting to consider the legislation. “After looking at it for a period, I feel more comfortable about it now.” The committee passed the bill in 2002, but the then-Democratic Senate leadership never allowed the full Senate to vote on the legislation. The Senate version of the bill is at odds with the House version. For example, on Wednesday House Education and the Workforce Chairman John Boehner, R-Ohio, planned to introduce a measure that tosses out the proposed yield curve calculation, substituting the use of a long-term corporate bond rate for two years. Meanwhile, the PBGC has indicated it has concerns with the Senate version. The proposed moratorium would result in a $40 billion drop in contributions companies must make to underfunded pension plans, PBGC executive director Steven Kandarian said Wednesday. PBGC is already suffering from a lag in required contributions and is running a $5.7 billion deficit. Federal pension rules require companies that fall below 90 percent of their required pension funding to make mandatory catch-up payments, called “deficit reduction contributions.” The companies most affected by this rule include those in the most at-risk industries, such as airlines and steel. “If the pension plans for those companies in those industries were to terminate, it would present additional pressures to the insurance agency, which is already in deficit,” Kandarian said. However, of greater concern, he noted, is the moratorium possibly becoming permanent. “When [Congress] puts things in a bill, they have a funny way of staying in place,” Kandarian said. The executive said the PBGC is working with the Bush administration to craft more expansive funding reforms. The Senate bill has also drawn fire because of its yield curve component. Opponents of this measure claim the concept is untested and could result in companies moving pension plans out of the stock market. But supporters contend a fixed rate typically undervalues liabilities due in the near term while overvaluing liabilities due later. This would force companies to make larger lump-sum payments to underfunded pension plans than are needed, proponents argue. Congress is against a tight deadline fix pension funding rules. The temporary replacement rate used to calculate pensions expires at year’s end. “The [Bush] administration believes this should move and should move this year,” Bill Sweetnam, a U.S. Treasury official who answered questions for the committee during a break in the meeting. �Copyright 2003, The Deal, LLC. All rights reserved.

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