CIEBA of AFP Supports New Standard For Pension Plan Funding Requirements

JANUARY 28, 2003 -- BETHESDA, MD --The Committee on Investment of Employee Benefit Assets, an affiliate of the Association for Financial Professionals (CIEBA of AFP), urges Congress to adopt a composite corporate bond rate for calculating minimum funding requirements for traditional pension plans. The current standard, which is used to determine minimum funding for defined benefit plans and Pension Benefit Guaranty Corporation (PBGC) premiums, is based on the 30-year Treasury bond rate. This standard does not reflect the true liabilities of pension plans and should be replaced.

CIEBA members, who manage more than $1 trillion in retirement plan assets, support designating an interest rate that neither underestimates or overestimates the minimum funding needed to assure retirement security for plan participants. Using a composite corporate bond rate that approximates the returns on insurance company investment portfolios best achieves this goal.

"The importance of traditional defined benefit pension plans that provide lifetime benefits to millions of plan participants has never been more apparent," said Gary Glynn, chairman of CIEBA and president of U.S. Steel and Carnegie Pension Fund. "Congress needs to act to remove impediments to the continuation and maintenance of these important plans. Forcing employers to make unnecessarily large contributions or pay higher than necessary PBGC premiums significantly weakens employer support and could undermine the private pension system."

CIEBA also endorses using a composite corporate bond rate for calculating lump sum payments from pension plans. CIEBA believes that there should be a level playing field between lump sums and annuities. But, the use of a lower interest rate creates a subsidy that makes lump sums more attractive. Workers are encouraged to take lump sum payout, foregoing any spousal protection and benefits that will last a lifetime.

CIEBA recognizes, however, that an abrupt change in the interest rate used to calculate lump sum payments could create a hardship for those closest to retirement. Therefore, CIEBA supports a phase-in for the use of the composite rate for lump sum calculations.

Click here to read the full text of the position statement.

The Committee on Investment of Employee Benefit Assets (CIEBA) is the voice of the Association for Financial Professionals (AFP). CIEBA is a nationally recognized forum for ERISA-governed corporate pension plan sponsors on fiduciary and investment matters. CIEBA members represent 115 of the nation's largest corporate pension funds, managing $711 billion in defined benefit plan assets and $441 billion in defined contribution plan assets on behalf of 16 million plan participants and beneficiaries.

The Association for Financial Professionals in Bethesda, Maryland supports more than 14,000 individual members from a wide range of industries through all stages of their careers in various aspects of treasury and financial management. AFP is the preferred resource for financial professionals for continuing education, financial tools and publications, career development, certification, research, representation to legislators and regulators, and the development of industry standards.

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