New Pension Interest Rate Issued for Defined-Benefit Plans

Washington (April 14, 2004) --The Treasury Department and the Internal Revenue Service have issued a new interest rate for pension plan funding.

The new rate implements the Pension Funding Equity Act of 2004, signed by President Bush on April 10. Under prior law, the pension funding interest rate was based on the 30-year Treasury bond. The Pension Funding Equity Act replaces the 30-year Treasury bond rate with a new rate based on high-quality, long-term corporate bonds, as specified by the Secretary of the Treasury.

The Treasury and the IRS will publish the new rate and the method used to determine the new rate in Notice 2004-34.

“The new interest rate provides a more appropriate measurement of pension liabilities, and we recognize that companies need the new rate to determine their quarterly plan contributions due on April 15," said acting assistant secretary for tax policy Greg Jenner. "Still, we must continue to work toward comprehensive pension funding reform.”

The Pension Funding Equity Act also allows certain plan sponsors (including airlines and steel companies) to elect relief from a portion of their required pension plan contributions. Announcement 2004-38 provides guidance on how to make and file the election with the IRS.

-- WebCPA staff

 

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