Moving Ahead for Progress in the 21st Century

On July 6, 2012 President Obama signed the Moving Ahead for Progress in the 21st Century Act ("MAP-21").  It contains special rules relating to pension funding stabilization for single-employer defined benefit pension plans. It affected defined benefit pension plans in several ways.

1. PBGC premiums are increased

The PBGC premium for single employer plans is made up of two components and both are increased. The flat rate portion, which was $35 per participant, is increased to $42 for 2013, $49 beginning in 2014 and indexed thereafter. The variable rate premium which was 0.009, is unchanged for 2013, but increased to at least 0.013 for 2014 and at least 0.018 for 2015. The actual percentage will depend on the intervening inflation adjustment. However, there is a new variable rate premium cap of $400 per participant starting in 2013, and adjusted for inflation after 2013.

2. Higher interest rates for benefit restrictions

The AFTAP used to determine if benefit restrictions apply to a plan can elect to use new interest rates which might be higher. This increases the AFTAP and thereby causing fewer plans to be subject to benefit restrictions. The new interest rate structure takes effect for all plans in 2013. Additionally, employers could elect to use the new interest rate structure for 2012. 

The AFTAP liabilities were calculated using three segment interest rates of a two-year average of corporate bond rates. MAP-21 stabilized the segment rates by adding a cap and a floor based on the 25-year average of each segment rate calculated as of September 30th of the preceding year, e.g., September 30th, 2012 for 2013.

3. Potentially lower minimum required contributions

Minimum required contribution were calculated using one of two different types of interest rate.

The first type of interest rate is based on a "yield curve" of corporate investment-grade bond data published by the US Treasury for the preceding month. This interest rate is not changed by MAP-21.

The second type of interest rate is the segment interest rates discussed above. MAP-21 changed the calculation of these interest rates by introducing a corridor. These new interest rates go into effect for all plans in 2013.

Employers were allowed to elect to use these new interest rates for 2012. This generally would have the effect of decreasing the minimum required contribution by approximately 15 - 25%.

4. When MAP-21 rates do not apply

- Lump Sums
- Maximum benefits under section 415
- PBGC variable rate premium
- Calculation of maximum tax deductible contributions

Pension Protection Act

On August 17, 2006, President Bush signed the Pension Protection Act (PPA), which is over 900 pages long and makes many changes to the laws affecting retirement plans, sponsoring employers, and participating employees.

The changes include comprehensive pension funding reform and other significant changes affecting hybrid defined benefit plans, defined contribution plans, non-qualified deferred compensation, and health plans. Most funding reforms take effect for the 2008 plan year, with the 2004-2005 temporary funding rules basically extended through 2007, although with new generally higher deduction limits. Other changes have different effective dates.

Read the full article here.

Economic Growth and Tax Relief Act of 2001

On June 7, 2001 President Bush signed the Economic Growth and Tax Relief Act of 2001. This Act will strengthen and expand our nation's employer sponsored retirement system in addition to providing tax relief to individuals.

The Act includes many positive changes that will promote retirement savings by encouraging new plan formation (particularly for growing businesses), strengthening retirement plan funding, ensuring protection of plan members, and reducing administrative burdens. The changes are effective in 2002 unless otherwise noted. Key elements of the Act include:

1. Increased Contribution and Benefit Limits 7. Expands Portability
2. Employer Deduction Limits 8. Small Amount Payouts
3. Defined Benefit Plan Changes 9. Catch-Up Contributions for Older Workers
4. Tax Credits 10. Contribution/Benefit Cutback Rules Under 411(d)(6)
5. Additional Disclosure Requirements 11. Faster Vesting for Matching Contributions
6. Modifications to Top-Heavy Rules 12. Roth Contribution in 401(k) and 403(b) Plans
  13. Miscellaneous Changes