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The Impact of Low Treasury Bond Rates on Defined Benefit Pension Plans

Description

As prescribed by ERISA, and amended by OBRA 87, the 30-year Treasury bond rate is used to discount future defined benefit employee pension obligations. However, the Treasury Department stopped issuing 30-year bonds in October 2001, and yields are now artificially low. As a temporary fix, the Job Creation and Worker Assistance Act of 2002 increased the range of permissible interest rates for determining contributions, but the fix will expire December 31, 2003. If Congress does not act this year, funding obligations to defined benefit plans will rise sharply in 2004. FERF provides the background and outstanding issues for financial executives, as well as links to selected references.

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