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Pension Managers Support Quick Action on Pension Funding
Interest Rate; Urge Caution on Radical Pension Changes
BETHESDA, MD -- JULY 15, 2003 --The Committee on Investment of
Employee Benefit Assets, an affiliate of the Association for Financial
Professionals (CIEBA of AFP), strongly supports the use of an interest
rate based on a composite of long-term, high-quality corporate bond indices
for determining required funding for traditional defined benefit plans.
The current discount rate, based on 30-year Treasury bonds, overstates
the funding necessary to meet plan benefit obligations. As such, it undermines
long-term support for traditional defined benefit plans.
Replacing the 30-year Treasury bond rate with a rate based on a high-quality
composite corporate bond rate has been thoroughly analyzed and enjoys
bipartisan support from key members of Congress, plan sponsors and employee
organizations. CIEBA urges Congress to enact this needed change as soon
as possible.
CIEBA urges Congress to delay taking action on any new proposals that
would fundamentally change the way pension plans are funded. Major
changes should not be made without careful review.
"Traditional plans are a mainstay of retirement security for millions
of American workers because they provide guaranteed benefits," said Jim
Kaitz, president and CEO of AFP. "Dramatically altering funding rules
without careful consideration may put these important retirement benefits
at risk for plan participants."
For example, the Treasury Department's proposal to use a discount rate
based on a "yield curve" raises many questions and concerns. Moving away
from a "smoothed" universal discount rate to a "spot" rate based on the
characteristics of individual plans would increase complexity and funding
volatility.
Increased volatility may influence investment decisions by institutional
investors and have negative consequences for equity markets and the economy
as a whole. These and other unanticipated negative consequences are possible
if funding rules are changed significantly without careful vetting and
analysis.
CIEBA believes that public policy should encourage support for private
sector defined benefit plans. In current economic uncertainty, more and
more workers are recognizing the importance of the guaranteed benefits
provided by traditional plans. Congress should not take any action that
would result in less access to pension plans for working Americans.
The Committee on Investment of Employee Benefit Assets (CIEBA) is the
voice of the Association for Financial Professionals (AFP) on employee
benefit plan asset management and investment issues. CIEBA is a nationally
recognized forum for ERISA-governed corporate pension plan sponsors on
fiduciary and investment matters. CIEBA members represent 120 of the nation's
largest corporate pension funds, managing more than one trillion dollars
in assets on behalf of sixteen 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 throughout
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,
certifications, research, representation to legislators and regulators,
and the development of industry standards.
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