Banner: Employee Benefits
Pension Bill Saves Day, Employer Groups Say
Law also revises small property-casualty insurance company tax threshold
Washington
Recently enacted pension-funding legislation represents "an enormous step in saving the U.S. private pension system," the leader of an employers' group contends.
"This legislation immediately helps American workers by alleviating the uncertainty their employers have experienced over the past three years in trying to fund their pension plans based on a benchmark that doesn't exist," said Mark Ugoretz, president of the Washington-based ERISA Industry Committee.
"Had the bill not passed," he added, "many companies would have been forced to freeze their plans."
The legislationH.R. 3108replaces the 30-year Treasury bond rate which was used as the benchmark for pension plan funding, with a rate based on long-term corporate bonds for plan years 2004 and 2005.
However, Congress will have to enact a new benchmark for plan years 2006 and beyond.
James A. Klein, president of the Washington-based American Benefits Council, also an employers group, noted that the 30-year Treasury bond rate is dangerously outdated.
Without enactment of H.R. 3108, artificially inflated pension obligations would have drained billions of dollars that would otherwise be used for capital investments and job creation, according to Mr. Klein.
Mr. Klein and Mr. Ugoretz both urged Congress to quickly begin work on a permanent solution.
Mr. Ugoretz said that ERIC has already begun developing a major employer proposal.
In addition to the pension provisions, H.R. 3108 revises the threshold for the small property-casualty company tax deduction.
Under the new threshold, a small p-c insurer will be tax exempt if its gross receipts do not exceed $600,000 and more than half of its gross receipts consist of premiums.
In addition, a mutual company will be tax-exempt if its gross receipts do not exceed $150,000 and more than 35 percent of its receipts consist of premiums.
Previously, the exemption applied to companies whose net written or direct written premiums did not exceed $350,000.
The National Association of Mutual Insurance Companies, based in Indianapolis, said that NAMIC supported the modification. It will tighten the loophole that some were using to avoid paying taxes on investment income, NAMIC said.
However, the association added, it is still seeking additional modifications in the tax rules for small p-c companies.
Reproduced from National Underwriter Edition, April 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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