Legislation Signed by the President on November 2nd Impacts Pensions

On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015 (H.R. 1314). The law makes several adjustments related to employer pension plans driven primarily by an intent to increase Federal tax revenue.

PBGC Premium Increases

Most notable among the pension changes is an increase in premiums payable by single-employer defined benefit plans to the Pension Benefit Guaranty Corporation (PBGC). Under previous provisions, in 2016 plans will pay a per-participant premium of $64 and a variable rate premium of $30 per $1,000 of underfunding, with subsequent years’ premiums increased by inflation adjustments. Under the new legislation, the per-participant premiums will be boosted to $69 for 2017, $74 for 2018, and $80 for 2019, and then indexed for inflation in subsequent years. The variable rate premium will continue to be indexed for inflation, but will be increased by an additional $3 in 2017, an additional $4 in 2018, and an additional $4 in 2019.

 

Year

Per-Participant
Premium

Variable Rate
Premium
(per $1,000 of
underfunding)

2015

$57

$24

2016

$64

$30

2017

$69

$33*

2018

$74

$37*

2019

$80

$41*

2020

$80*

$41*

*Reflects only the fixed increases; additional inflation component is yet to be added

Pension Funding Relief Extension

On a positive note, the law also extends pension funding relief measures which were enacted in 2014’s Highway and Transportation Funding Act (HATFA). Under that Act, the interest rates for valuing certain liabilities (for determining statutory minimum contributions to plans and for other purposes) were limited to a corridor of plus or minus ten percent of average treasury interest rates over the past 25 years. Then the corridor was scheduled to increase by five percent per year from 2018 through 2021, when it reached an ultimate rate of 30 percent. Under the new law, the five percent annual increases in the corridor are delayed to the period 2021 to 2024. Intended as a revenue enhancement, the effect for plan sponsors will be to reduce required contributions to their plans in the near term. Other considerations, such as minimizing the impact of rising PBGC premiums, may affect each plan sponsor’s actual contribution policy.

Pension Update chart 2015

Plan-Specific Mortality Tables

The legislation also added some flexibility to vary from mortality tables prescribed by the Treasury for funding determinations and other purposes, allowing adjustments based on credible plan experience. Only very large organizations have had credible plan experience up to now. Although unclear how other plans can exhibit credible plan experience, this option is now available to more plans.

For more information on the recent legislation and its potential effects on your plan, please contact Eddie Vaughn, This email address is being protected from spambots. You need JavaScript enabled to view it., 336.271.2063, or your Findley Davies consultant.

 

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