What is status of potential RPA rate changes?

[Effen]

I was hoping we would have something final on the 1/1/04 RPA rate. Anyone know what’s happening in DC with this? I have several clients whose contribution is driven by the additional funding charges and they are very interested in this. I don't really want to release a report using 105% if it will ultimately be changed back to 120%.

[Blinky the 3-eyed Fish]

I had heard of the 120% applying to steel industries and airlines, but no one else. At least that is what I recall.

[david rigby]

Currently in the Joint Tax Committee. However, their current focus is on a different bill, so don't expect action for a while.

[AndyH]

Effen, you may find this useful:

http://www.americanbenefitscouncil.org/doc...s/aa-022704.htm

[MGB]

There has never been any intention of applying 120% to anyone, nor has there ever been any legislative proposals even hinting at that.

The Joint Tax Committee has nothing to do with this process.

The House and Senate passed different versions of the bills. When this happens, they either send the second version passed by the Senate to the House and they vote on it (didn't happen), or they form a "conference committee" made up of a handful of people from each house. Within the conference committee, they choose who's version of the differences they want in the final bill. In recent months, the Republicans have also been changing non-differences in bills and even adding new provisions in other conference committees non-pension related. The Senate picked their conference members a few weeks ago, just after passing their version. The House has not assigned committee members yet. The stalling is on purpose, but first here is what the differences are:

In each case, the change would apply to the current liability interest rate used for both funding purposes and PBGC premiums, but would not apply to lump sums. The change in rate would only apply for two years and then we would revert back to current law.

Both versions changed the rates from 30-yr Treasury to an average of at least two long-term corporate bond indices. The Senate version restricted it to indices that only covered the top two grades (Aaa and Aa), whereas the House version is not as restrictive.

The House version provided some contribution relief to airlines only.

The Senate version provided relief (i.e., a reduced amount in the next two years) to airlines and steel companies automatically, and allowed any company to apply to the IRS for the same relief. It also provided relief for multiemployer plans by delaying any loss base to not start being amortized for three years, but you could only do this in two of four years covered by the rule.

The Senate version also attempted (the language is actually wrong and doesn't do this) to replace the plan's interest rate with a flat 5.5% for 415 limit lump sums.

The Senate version also provides money to increase the country's supply of fish stocks. Yeah, that's how laws get passed.

Now for the delay. There are many in the House that do not want the DRC relief for anyone other than airlines and also do not want the multiemployer relief. The Bush administration has hinted at a veto if these things are included in the final bill. Obviously, these are things that should be decided in the conference committee and normally would be. However, the Republicans are trying to make these "decisions" outside of the process and get agreements in place before they officially convene the committee. In other words, there is the same type of breaking of rules going on by the leadership that has become rampant in the Republican-controlled legislatures over the past few years on many, many bills and issues.

Then, just to throw a wrench into the whole process, Thomas, the Republican Chairman of the House Ways and Means Committee, has come out with statements in the past week that he doesn't see any need for any type of relief becasue pension funds earned so much on their assets in 2003. Note that Thomas will be the ranking member from the House assigned to the conference committee once they actually do it.

The last thing heard on this is they expect to get the committee going by the end of the week.

If passed, note that the law does not specify what the rate should be. It is left to the IRS to determine it, given the parameters set out in the law. At 1/1/04, the funding rate is expected to be between 6.25 and 6.5%, assuming the Senate language survives.

[JAY21]

MGB, for us slow folks, is the only bill version that could possibly extend DRC relief to all plans (w/over 100 prts) the House version of H.R. 3108 ? The senate version of same bill and the H.R. 3521 bill does not provide across-the-board relief to all. Is this correct ? I guess I'm hoping that one version has some chance of extending broad relief.

[david rigby]

http://www.plansponsor.com/pi_type10/?RECORD_ID=24469

[MGB]

The only version that would exend DRC relief to all is the Senate version of HR3108, but non-airlines/steel would need to apply to the IRS to get it (basically the same kind of application as a waiver). The difference with this application and a waiver is that if the IRS doesn't respond in 60 days, you automatically get the relief.

The House version did not have broad-based DRC relief.

[david rigby]

Comparison of provisions from Joint Tax Committee 03/05/04:

http://www.house.gov/jct/x-17-04.pdf