Congress Approves Defined Benefit Pension Funding Bill
Rev. April 16, 2004 E-mail Alert 2004-8

On April 10, 2004, President Bush signed the Pension Funding Equity Act of 2004 (PFEA '04) into law. The new law is intended to provide defined benefit pension plan relief in light of the change caused by the elimination of the 30-year Treasury Bond. That security's rate had been used as the index in defined benefit plan funding calculations. With the discontinuance of the 30-year Treasury Bond, the IRS had to set an artificial rate, which saw an increase in pension plan funding costs.

The law substitutes a new interest rate methodology based on a composite rate of high quality corporate bonds that will be published by the IRS.

PFEA '04 also changes the rules for determining whether an underfunded defined benefit plan will be required to make quarterly contributions for the current plan year. These changes are available for the 2004 plan year.

PFEA '04 is only a temporary fix that applies through 2005 as further steps are anticipated and this is seen as a transition providing relief that was needed urgently. However, if Congress fails to take further action in 2005, the old law rules will go back into effect for the 2006 plan year.

Other highlights of PFEA '04 include:

The law also gave relief to certain depressed industries (such as airlines and steel) by reducing their deficit reduction contributions for two years.

An extension was provided until 2013 for transfers of excess pension assets to cover retiree health care.

Click here for the Law as Passed by Both the House and Senate

IRS Notice 2004-34 Provides Brand New Weighted Average Rates Methodology

Rich Hochman and Bill Grossman