Treasury and IRS Issue New Pension Interest Rate for Defined Benefit Plans

On Monday, the Treasury Department and the IRS issued a new interest rate for pension plan funding. The new rate implements the Pension Funding Equity Act of 2004, which President Bush signed into law on April 10, 2004.

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. Treasury and the IRS are publishing the new rate, and the method used to determine the new rate, in Notice 2004-34.

“We are pleased to publish this rate immediately after enactment,” said Acting Assistant Secretary for Tax Policy Greg Jenner. “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. 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. Treasury and the IRS issued Announcement 2004-38 on Monday, providing guidance on how to make and file the election with the IRS.

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