February 13, 2003
The Honorable John Snow
Secretary of the Treasury
U.S. Department of the Treasury
Main Treasury, Room 3330
1500 Pennsylvania Ave., N.W.
Washington, D.C. 20220
Dear Mr. Secretary:
Acting now to replace the defunct 30-year Treasury bond rate for
purposes of regulating pension plans is critical to protect the
retirement security of millions of American workers and to avoid
undercutting economic recovery.
The undersigned companies and organizations commend to you the
proposal to switch to a composite high-quality long-term corporate
bond rate that has been under public scrutiny for several months.
We urge you to ensure that a permanent replacement of the 30-year
Treasury rate is enacted without delay.
Prompt action is urgent. Action by the end of the first quarter
of 2003 is needed; action by the end of the second quarter of 2003
is vital. Waiting until late in 2003 to resolve this matter
will have a dramatic and damaging impact on plans and plan
participants, companies, and the prospects for economic
Differences in contributions required under a corporate bond
rate and the Treasury rate that will apply in 2004 are in the
hundreds of millions of dollars for many large companies and are of
related magnitude for smaller companies. These elevated
contribution requirements are artificially but substantially
inflated due to the historically low 30-year Treasury rate.
Although the "temporary fix" (P.L.107-147) that allows defined
benefit pension plans to use a discount rate of 120% of the
four-year weighted average of 30-year Treasury bond rates does not
expire until the end of this year, the uncertainty regarding
pension contributions required for 2004, 2005, and beyond already
is creating dangerous dislocations.
- Companies that do not have cash available for artificially
inflated contributions have decided to freeze future benefit
accruals or are considering such action.
- CEOs and CFOs need to know now whether they will be able to
purchase new plant and equipment, to invest in research and
development, and to accomplish other vital business objectives. The
prospect of excessive cash contributions next year is already
leading many companies to severely restrict near-term spending
plans until an appropriate replacement for the 30-year rate is
- Uncertainty over required future pension contributions is
undermining the ability of companies to proceed with corporate
transactions and make other business decisions necessary for future
- Analysts today are steering investors away from companies with
large, uncertain pension obligations, depressing stock prices and
further hampering the ability of U.S. companies to rebuild the
In addition to greater predictability, companies urgently need
access to a discount rate that appropriately measures pension
liability and that is readily available, easy to administer, immune
from manipulation, and transparent. A composite rate of high
quality corporate bond indices combined with rules that permit
funding up plans without incurring penalties meets all of these
There are many pension and retirement issues facing the federal
government and the nation that we would be pleased to discuss with
the Administration over the coming weeks and months. However, our
joint concern for sound long-term pension policy would best be
served at this time by immediate and targeted action to replace the
30-year Treasury rate. From that new and more stable platform,
future discussions can and will go forward.
Air Products and Chemicals, Inc.
AK Steel Corporation
American Benefits Council
American Crystal Sugar
American Hospital Association
AT& T Corp.
The Boeing Company
Budget Rent a Car Systems, Inc.
Committee on Investment of Employee Benefit Assets
Deloitte & Touche LLP
Delta Air Lines Inc.
Deseret Mutual Benefit Administrators
The Dow Chemical Company
The ERISA Industry Committee
Financial Executives International's Committee on Benefits
Froedtert Memorial Lutheran Hospital
The Goodyear Tire & Rubber Company
Indianapolis Power & Light Company
International Business Machines Corporation
International Paper Company
International Truck and Engine Corporation
Ispat Inland Inc.
ITT Industries, Inc.
Lyondell Chemical Company
Lucent Technologies Inc.
Michael Best & Friedrich
National Association of Manufacturers
Sears, Roebuck and Co.
The Segal Company
Shands Health Care
Shell Oil Company
Society for Human Resource Management
Stora Enso North America
The Timken Company
United States Steel Corporation
U.S. Chamber of Commerce
Walter Industries, Inc.
Wells Fargo Bank
For additional information, please contact:
Janice Gregory, The ERISA Industry Committee (202)firstname.lastname@example.org
Judy Schub, Committee on Investment of Employee Benefit Assets
John Scott, American Benefits Council (202)email@example.com
Hon. Peter Fisher
Undersecretary for Domestic Finance
Mr. Mark Warshawsky
Deputy Assistant Secretary for Economic Policy
Mr. Edward DeMarco, Director
Office of Financial Institutions and GSE Policy
Mr. William Sweetnam
Benefits Tax Counsel
Mr. Carlos Bonilla
Special Assistant to the President for Economic Policy
The White House
Hon. Kathleen Cooper
Under Secretary for Economic Affairs
U.S. Department of Commerce
Hon. Ann Combs, Assistant Secretary
Employee Benefits Security Administration
U.S. Department of Labor
Mr. Steven Kandarian
Pension Benefit Guaranty Corporation