On 8 April 2004 Congress passed, and President Bush signed, legislation that will lower the amount of required employer contributions to traditional pension (defined benefit) plans for two years, as well as providing special relief for the airline and steel industries. On 12 April 2004 the Internal Revenue Service issued guidance interpreting the new law. These actions took place with an impending April 15 deadline for most employers to make the first installment of contributions to these plans for the calendar year 2004. The concern arose because the expiration of an interest rate measure used to determine plan funding requirements had resulted in a lowering of the interest rates used for such purposes; the result was significant increases in the required contributions. The new law replaces, for 2004 and 2005, the 30-year US Treasury interest rate with a composite corporate bond rate. The relief in the new law is only temporary because of concerns about the financial strength of the Pension Benefit Guaranty Corporation, the governmental agency that guarantees pension payments for participants in those underfunded plans whose sponsors cannot afford to make the requisite contributions. By some estimates, the PBGC currently faces a multi-billion dollar shortfall, and reducing the amount of the required employer contributions increases the risk of increasing that shortfall.
Source: Pension Funding Equity Act of 2004, Pub. L. 108- (signed 10 April 2004). Internal Revenue Service Notice 2004-34, (released 12 April 2004) (general guidance on the new law). Internal Revenue Service Announcement 2004-38, (released 12 April 2004) (special guidance for airlines and steel manufacturers). Howard Pianko, Epstein Becker & Green email: hpianko@ebglaw.com