Additional Pension Funding Relief on the Horizon?

Written By Blaine Brickhouse, FSA

On July 10, 2014, committees in both the House and Senate approved similar – but not identical – bills which would extend pension funding relief for several more years.

This relief was first provided by the Moving Ahead for Progress in the 21st Century Act (MAP-21) which was enacted in 2012. Under MAP-21, the relief required the funding segment rates for 2012 to be within 90% - 110% of the 25-year average of segment interest rates defined under the Pension Protection Act of 2006. However, MAP-21 quickly reduced the stabilization in 2013 to 85% - 115% of the 25-year average interest rates in 2013 with further reductions each year until it becomes 70% - 130% in 2016.

The House bill would extend the relief provided by MAP-21 by extending the 90% - 110% level of the stabilization for each of the years 2012 through 2017. The Senate bill would extend the 90% - 110% level of the stabilization only for the years 2012 through 2015.

What is the contribution savings of this proposed legislation?

The reduction in the otherwise minimum required contribution can vary significantly based on funded ratio, whether the plan is frozen or not, the demographics of the plan, and other factors. Potentially the savings for the 2013 plan year could range from 10% - 30%. The reduction of the minimum required contribution for the 2014 plan year would be even greater.

It should be noted that since the 2013 minimum required contribution for calendar plan years is due by September 15, 2014, there will be little time for planning and revision of valuation calculations if this legislation is passed this summer.

Both bills are part of legislation which would extend federal transportation funding. The House bill is the Highway and Transportation Funding Act (HR 5021) and the Senate bill is the Preserving America's Transit and Highways (PATH) Act.

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