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The Resource for the Global Finance Profession

Comment Letter

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 recovery.

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 confirmed.
  • 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 growth.
  • 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 economy.

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 requirements.

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.


Sincerely yours,


Air Products and Chemicals, Inc.
AK Steel Corporation
Ameren Corporation
American Benefits Council
American Crystal Sugar
American Hospital Association
Arch Coal
Ashland Inc.
AT& T Corp.
The Boeing Company
Budget Rent a Car Systems, Inc.
Caterpillar Inc.
ChevronTexaco Corporation
Committee on Investment of Employee Benefit Assets
Dana Corporation
Deloitte & Touche LLP
Delphi Corporation
Delta Air Lines Inc.
Deseret Mutual Benefit Administrators
The Dow Chemical Company
The ERISA Industry Committee
Financial Executives International's Committee on Benefits Finance
Froedtert Memorial Lutheran Hospital
The Goodyear Tire & Rubber Company
Hewitt Associates
Hewlett-Packard 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
Milliman USA
Milwaukee Forge
National Association of Manufacturers
Pabst Brewing
Peabody Energy
Sears, Roebuck and Co.
The Segal Company
Shands Health Care
Shell Oil Company
Snap-on Incorporated
Society for Human Resource Management
Stora Enso North America
The Timken Company
United States Steel Corporation
U.S. Chamber of Commerce
Verizon Communications
Walter Industries, Inc.
Wells Fargo Bank
Xerox Corporation

For additional information, please contact:
Janice Gregory, The ERISA Industry Committee (202)789-1400
Judy Schub, Committee on Investment of Employee Benefit Assets (301)907-2862
John Scott, American Benefits Council (202)289-6700


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
Executive Director
Pension Benefit Guaranty Corporation

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