[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1550 Introduced in Senate (IS)]

  1st Session
                                S. 1550

To change the 30-year treasury bond rate to a composite corporate rate, 
        and to establish a commission on defined benefit plans.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                July 31 (legislative day, July 21), 2003

   Mr. Gregg introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To change the 30-year treasury bond rate to a composite corporate rate, 
        and to establish a commission on defined benefit plans.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Pension Stability Act''.

SEC. 2. INTEREST RATES USED FOR PENSION PLANS; COMMISSION ON DEFINED 
              BENEFIT PLANS.

    (a) Replacement of Interest Rate on 30-Year Treasury Securities 
With Interest Rate on Conservatively-Invested Long-Term Corporate 
Bonds.--
            (1) Internal revenue code of 1986.--
                    (A) In general.--Section 412(b)(5)(B)(ii) of the 
                Internal Revenue Code of 1986 is amended--
                            (i) in subclause (I)--
                                    (I) by striking ``subclause (II)'' 
                                and inserting ``subclauses (II) and 
                                (III)'';
                                    (II) by striking ``10 percent 
                                above''; and
                                    (III) by striking ``the rates of 
                                interest on 30-year Treasury 
                                securities'' and inserting 
                                ``conservative long-term corporate bond 
                                rates''; and
                            (ii) by adding at the end the following:
                                    ``(III) Special rule.--In the case 
                                of plan years beginning in 2004 and 
                                2005, subclause (I) shall be applied by 
                                substituting `which is not more than 5 
                                percent above' for `which is not more 
                                than'.''
                    (B) Conservative long-term corporate bond rates.--
                Section 412(b)(5) of such Code is amended by adding at 
                the end the following new subparagraph:
                    ``(C) Conservative long-term corporate bond 
                rates.--The Secretary shall, by regulation, prescribe a 
                method for periodically determining the conservative 
                long-term corporate bond rates for purposes of this 
                paragraph. Such rates shall reflect rates of interest 
                on amounts conservatively invested in long-term 
                corporate bonds and shall be based on the use of 2 or 
                more indices, provided such indices are in the top 2 
                quality levels available reflecting average maturities 
                of 20 years or more.''
                    (C) Amendment reflecting the change in the interest 
                rate calculation.--Section 412(b)(5)(B)(iii)(II) of 
                such Code is amended to read as follows:
                                    ``(II) consistent with the annual 
                                rate of return with respect to amounts 
                                conservatively invested in long-term 
                                corporate bonds.''
                    (D) Elimination of corridor.--Section 412(l)(7)(C) 
                of such Code is amended by striking clause (i) and 
                inserting the following:
                            ``(i) Interest rate.--The rate of interest 
                        used to determine current liability under this 
                        subsection shall be the rate of interest used 
                        under subsection (b)(5).''
                    (E) Determination of present value.--
                            (i) In general.--Section 
                        417(e)(3)(A)(ii)(II) of such Code is amended to 
                        read as follows:
                                    ``(II) Applicable interest rate.--
                                The term `applicable interest rate' 
                                means an annual rate of interest equal 
                                to the conservative long-term corporate 
                                bond rate (as determined under section 
                                412(b)(5)(C)) for the month before the 
                                date of distribution or such other time 
                                as the Secretary may by regulations 
                                prescribe.''
                            (ii) Limitation on certain assumptions.--
                        Section 415(b)(2)(E)(ii) of such Code is 
                        amended by striking ``the applicable interest 
                        rate (as defined in section 417(e)(3))'' and 
                        inserting ``5.5 percent''.
                            (iii) Phase in of interest rate on long-
                        term corporate bonds.--Section 417(e)(3) of 
                        such Code is amended by adding at the end the 
                        following:
                    ``(C) Rules for phase in of interest rate on long-
                term corporate bonds.--
                            ``(i) In general.--In the case of a plan 
                        year specified in the table in clause (ii), the 
                        applicable interest rate under subparagraph 
                        (A)(ii)(II) shall be the lower of--
                                    ``(I) such applicable interest rate 
                                (without regard to this subparagraph); 
                                or
                                    ``(II) the 30-year Treasury 
                                securities rate plus the applicable 
                                percentage of the excess of such 
                                applicable interest rate (without 
                                regard to this subparagraph) over the 
                                30-year Treasury securities rate.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage shall 
                        be determined in accordance with the following 
                        table:

``Plan year beginning in calendar                            Applicable
  year:                                                     percentage:
                    2004...................................          0 
                    2005...................................          0 
                    2006...................................         20 
                    2007...................................         40 
                    2008...................................         60.
                            ``(iii) Special rule for collectively 
                        bargained plans.--In the case of a plan 
                        maintained pursuant to 1 or more collective 
                        bargaining agreements between employee 
                        representatives and 1 or more employers 
                        ratified by the date of enactment of this 
                        subparagraph, in lieu of the 5 calendar years 
                        specified in clause (ii), the years 
                        corresponding to the applicable percentages in 
                        clause (ii) shall be the first 5 years to which 
                        clause (i) applies to employees covered by any 
                        such agreement. This clause shall only apply to 
                        such employees.''
            (2) Employee retirement income security act of 1974.--
                    (A) In general.--Section 302(b)(5)(B)(ii) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1082(b)(5)(B)(ii)) is amended--
                            (i) in subclause (I)--
                                    (I) by striking ``subclause (II)'' 
                                and inserting ``subclauses (II) and 
                                (III)'';
                                    (II) by striking ``10 percent 
                                above''; and
                                    (III) by striking ``the rates of 
                                interest on 30-year Treasury 
                                securities'' and inserting 
                                ``conservative long-term corporate bond 
                                rates''; and
                            (ii) by adding at the end the following:
                                    ``(III) Special rule.--In the case 
                                of plan years beginning in 2004 and 
                                2005, subclause (I) shall be applied by 
                                substituting `which is not more than 5 
                                percent above' for `which is not more 
                                than'.''
                    (B) Conservative long-term corporate bond rates.--
                Section 302(b)(5) of such Act (29 U.S.C. 1082(b)(5)) is 
                amended by adding at the end the following new 
                subparagraph:
                    ``(C) Conservative long-term corporate bond rate.--
                The Secretary of the Treasury shall, by regulation, 
                prescribe a method for periodically determining 
                conservative long-term corporate bond rates for 
                purposes of this paragraph. Such rates shall reflect 
                rates of interest on amounts conservatively invested in 
                long-term corporate bonds and shall be based on the use 
                of 2 or more indices, provided such indices are in the 
                top 2 quality levels available reflecting average 
                maturities of 20 years or more.''
                    (C) Amendment reflecting the change in the interest 
                rate calculation.--Section 302(b)(5)(B)(iii)(II) of 
                such Act (29 U.S.C. 1082(b)(5)(B)(iii)(II)) is amended 
                to read as follows:
                                    ``(II) consistent with the annual 
                                rate of return with respect to amounts 
                                conservatively invested in long-term 
                                corporate bonds.''
                    (D) Elimination of corridor.--Section 302(d)(7)(C) 
                of such Act is amended by striking clause (i) and 
                inserting the following:
                            ``(i) Interest rate.--The rate of interest 
                        used to determine current liability under this 
                        subsection shall be the rate of interest used 
                        under subsection (b)(5).''
                    (E) Determination of present value.--
                            (i) In general.--Section 
                        205(g)(3)(A)(ii)(II) of such Act (29 U.S.C. 
                        1055(g)(3)(A)(ii)(II)) is amended to read as 
                        follows:
                                    ``(II) Applicable interest rate.--
                                The term `applicable interest rate' 
                                means an annual rate of interest equal 
                                to the conservative long-term corporate 
                                bond rate (as determined under section 
                                302(b)(5)(C)) for the month before the 
                                date of distribution or such other time 
                                as the Secretary may by regulations 
                                prescribe.''
                            (ii) Phase in of interest rate on long-term 
                        corporate bonds.--Section 205(g)(3) of such Act 
                        (29 U.S.C. 1055(g)(3)) is amended by adding at 
                        the end the following:
                    ``(C) Rules for phase in of interest rate on long-
                term corporate bonds.--
                            ``(i) In general.--In the case of a plan 
                        year specified in the table in clause (ii), the 
                        applicable interest rate under subparagraph 
                        (A)(ii)(II) shall be the lower of--
                                    ``(I) such applicable interest rate 
                                (without regard to this subparagraph); 
                                or
                                    ``(II) the 30-year Treasury 
                                securities rate plus the applicable 
                                percentage of the excess of such 
                                applicable interest rate (without 
                                regard to this subparagraph) over the 
                                30-year Treasury securities rate.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage shall 
                        be determined in accordance with the following 
                        table:

``Plan year beginning in calendar                            Applicable
  year:                                                     percentage:
                    2004...................................          0 
                    2005...................................          0 
                    2006...................................         20 
                    2007...................................         40 
                    2008...................................         60.
                            ``(iii) Special rule for collectively 
                        bargained plans.--In the case of a plan 
                        maintained pursuant to 1 or more collective 
                        bargaining agreements between employee 
                        representatives and 1 or more employers 
                        ratified by the date of enactment of this 
                        subparagraph, in lieu of the 5 calendar years 
                        specified in clause (ii), the years 
                        corresponding to the applicable percentages in 
                        clause (ii) shall be the first 5 years to which 
                        clause (i) applies to employees covered by any 
                        such agreement. This clause shall only apply to 
                        such employees.''
                    (F) PBGC premium rates.--Section 
                4006(a)(3)(E)(iii)(II) of such Act (29 U.S.C. 
                1306(a)(3)(E)(iii)(II)) is amended--
                            (i) in the first sentence, by striking 
                        ``the annual yield on 30-year Treasury 
                        securities'' and inserting ``the annual rate of 
                        interest equal to the long-term corporate bond 
                        rate (as determined under section 
                        302(b)(5)(C))''; and
                            (ii) by striking the second sentence.
    (b) Commission.--
            (1) Establishment of the commission.--
                    (A) Establishment.--There is established the 
                Commission on Defined Benefit Pension Plans (in this 
                Act referred to as the ``Commission'').
                    (B) Membership.--
                            (i) Composition.--The Commission shall be 
                        composed of 13 members of whom--
                                    (I) 1 shall be the Secretary of 
                                Labor or their designee;
                                    (II) 1 shall be the Secretary of 
                                the Treasury or their designee;
                                    (III) 1 shall be the Executive 
                                Director of the Pension Benefit 
                                Guaranty Corporation;
                                    (IV) 2 shall be appointed by the 
                                President from among members of the 
                                general public;
                                    (V) 1 shall be appointed by the 
                                chairman of the Committee on Health, 
                                Education, Labor, and Pensions of the 
                                Senate;
                                    (VI) 1 shall be appointed by the 
                                ranking minority member of the 
                                Committee on Health, Education, Labor, 
                                and Pensions of the Senate;
                                    (VII) 1 shall be appointed by the 
                                chairman of the Committee on Finance of 
                                the Senate;
                                    (VIII) 1 shall be appointed by the 
                                ranking minority member of the 
                                Committee on Finance of the Senate;
                                    (IX) 1 shall be appointed by the 
                                chairman of the Committee on Education 
                                and the Workforce of the House of 
                                Representatives;
                                    (X) 1 shall be appointed by the 
                                ranking minority member of the 
                                Committee on Education and the 
                                Workforce of the House of 
                                Representatives;
                                    (XI) 1 shall be appointed by the 
                                chairman of the Committee on Ways and 
                                Means of the House of Representatives; 
                                and
                                    (XII) 1 shall be appointed by the 
                                ranking minority member of the 
                                Committee on Ways and Means of the 
                                House of Representatives.
                    (C) Period of appointment; vacancies.--Members 
                shall be appointed for the life of the Commission. Any 
                vacancy in the Commission shall not affect its powers, 
                but shall be filled in the same manner as the original 
                appointment.
                    (D) Quorum.--A majority of the members of the 
                Commission shall constitute a quorum, but a lesser 
number of members may hold hearings.
                    (E) Chairperson and vice chairperson.--The 
                Commission shall select a Chairperson and Vice 
                Chairperson from among its members.
            (2) Duties of the commission.--
                    (A) Study and recommendations.--The Commission 
                shall conduct a thorough study of, and shall develop 
                recommendations on, the following issues relating to 
                defined benefit pension plans:
                            (i) How to reform the defined benefit 
                        pension plan funding rules to increase 
                        participants' benefit security, provide 
                        rational and predictable funding rules for 
                        employers, and protect the financial 
                        independence of the Pension Benefit Guaranty 
                        Corporation.
                            (ii) The relevance and effectiveness of the 
                        current liability rules, and, if such rules are 
                        maintained, an analysis of alternative 
                        valuation measures for those rules, including 
                        the rationale for the measures as well as their 
                        strengths and weaknesses.
                            (iii) The appropriate interest rates that 
                        should be used in valuing plan liabilities, the 
                        variable rate premium, and lump-sum benefits, 
                        including whether the rates proposed are 
                        transparent, widely understood, publicly 
                        available, and resistant to manipulation.
                            (iv) Whether the recommended interest rate 
                        would impact the investment policy of the 
                        pension trust along with an analysis of the 
                        impact on capital markets, the cost of 
                        maintaining a pension plan over the long term, 
                        and the compatibility of the recommended 
                        funding profile with the Employee Retirement 
                        Income Security Act of 1974 requirement to 
                        diversify investments.
                            (v) The appropriate mortality assumptions 
                        that should be used in valuing plan 
                        liabilities.
                            (vi) Whether such assumptions should 
                        contain a collar adjustment or should otherwise 
                        be adjusted to reflect the workforce covered by 
                        the plan.
                            (vii) A consideration of other actuarial 
                        assumptions used in valuing plan liabilities.
                            (viii) Whether the same interest rate 
                        should be used for purposes of both funding and 
                        lump sum benefits, including consideration of 
                        the effect on plan funding and other purposes 
                        for which the interest rate is used if such 
                        rate is different for those purposes.
                            (ix) The effect of the interest rate on 
                        participants' decisions whether to elect lump 
                        sum benefits.
                            (x) The appropriate means of providing 
                        transition protection to participants in the 
                        event changes are enacted.
                            (xi) Whether the same interest rate used 
                        for funding purposes should also apply for 
                        other purposes for which the rate of interest 
                        on 30-year Treasury securities is currently 
                        used.
                            (xii) The need to avoid volatile funding 
                        obligations and how to reform the law to avoid 
                        such volatility, including volatility 
                        attributable to the recent downturn in the 
                        equity markets and significant decrease in 
                        interest rates.
                            (xiii) The need for predictability, 
                        simplicity, and transparency with respect to 
                        the calculation of funding obligations, and how 
                        to reform the law to achieve such goals.
                            (xiv) Effective means that would allow 
                        additional funding in favorable economic 
                        periods, so that funding levels can withstand 
                        market downturns without requiring large 
                        contributions during adverse economic 
                        conditions.
                            (xv) How to design transition rules so that 
                        funding reforms do not cause short-term 
                        hardships for employers or employees.
                            (xvi) How to ensure that required 
                        disclosure of funding information is material 
                        and relevant without requiring disclosures that 
                        impose disclosure requirements that are 
                        unnecessarily burdensome, are misleading with 
                        respect to the funded status of an ongoing 
                        plan, or are not adjusted to reflect the size 
                        of the plan.
                            (xvii) Other funding and benefit reforms 
                        that would promote the creation and expansion 
                        of defined benefit plans.
                    (B) Report.--Not later than December 31, 2006, the 
                Commission shall submit a report to the appropriate 
                committees of Congress containing a detailed statement 
                of the findings and conclusions of the Commission, 
                together with its recommendations for such legislation 
                as it considers appropriate.
            (3) Powers of the commission.--
                    (A) Hearings.--The Commission may hold such 
                hearings, sit and act at such times and places, take 
                such testimony, and receive such evidence as the 
                Commission considers advisable to carry out this Act. 
                The Commission shall, to the maximum extent possible, 
                use existing data and research prior to holding such 
                hearings.
                    (B) Information from federal agencies.--The 
                Commission may secure directly from any Federal 
                department or agency such information as the Commission 
                considers necessary to carry out this Act. Upon request 
                of the Chairperson of the Commission, the head of such 
                department or agency shall furnish such information to 
                the Commission.
                    (C) Postal services.--The Commission may use the 
                United States mails in the same manner and under the 
                same conditions as other departments and agencies of 
                the Federal Government.
            (4) Commission personnel matters.--
                    (A) Compensation; travel expenses.--Each member of 
                the Commission shall serve without compensation but 
                shall be allowed travel expenses, including per diem in 
                lieu of subsistence, at rates authorized for employees 
                of agencies under subchapter I of chapter 57 of title 
                5, United States Code, while away from their homes or 
                regular places of business in the performance of 
                services for the Commission.
                    (B) Staff and equipment.--The Department of the 
                Treasury shall provide all financial, administrative, 
                and staffing requirements for the Commission 
                including--
                            (i) office space;
                            (ii) furnishings; and
                            (iii) equipment.
            (5) Termination of the commission.--The Commission shall 
        terminate 90 days after the date on which the Commission 
        submits its report under paragraph (2)(B).
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraphs (2) and 
        (3), the amendments made by this section shall apply to years 
        beginning after December 31, 2003.
            (2) Lookback rules.--For purposes of applying all 
        applicable lookback rules in years beginning on or after the 
        otherwise applicable effective date determined under paragraph 
        (1) or (3), the amendments made by this section may be applied 
        as if such amendments had been in effect for all years 
        beginning before such effective date. For purposes of this 
        paragraph, a lookback rule is a rule that uses data from a 
        prior year in determining requirements applicable to the 
        current year.
            (3) Collective bargaining agreements.--Except as provided 
        in paragraph (2), in the case of a plan maintained pursuant to 
        1 or more collective bargaining agreements between employee 
        representatives and 1 or more employers ratified by the date of 
        the enactment of this Act, the amendments made by this Act to 
        section 417(e)(3) of the Internal Revenue Code of 1986 and to 
        section 205(g)(3) of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1055(g)(3)), and for purposes of section 
        411(a)(11)(B) of the Internal Revenue Code of 1986 and section 
        203(e)(2) of the Employee Retirement Income Security Act of 
        1974 (29 U.S.C. 1053(e)(2)), shall not apply to employees 
        covered by any such agreement for plan years beginning before 
        the earlier of--
                    (A) the later of--
                            (i) the date on which the last of such 
                        collective bargaining agreements terminates 
                        (determined without regard to any extension 
                        thereof on or after such date of enactment); or
                            (ii) January 1, 2006; or
                    (B) January 1, 2008.
    (d) Termination Date.--None of the amendments made by this section 
shall apply to plan years beginning after December 31, 2008.
                                 <all>