Defined Benefit
Pension
Funding
Relief from
MAP 21
Lawrence R. Peters, CPA, EA
Required Contributions to Defined Benefit Plans
On July 6, 2012, the Moving Ahead for Progress in the
21st Century Act (MAP-21) was signed into law. As part
of this highway construction bill, provisions for defined
benefit pension plan funding relief were included.
As many of our DB clients know, beginning in 2008,
pension plans were subject to new funding rules under
the Pension Protection Act of 2006. These new rules
dramatically changed the basis for determining the
contribution which plan sponsors are required to make to
their plan. The change which has probably had the greatest
impact on the minimum required contributions was the
mandate specifying the interest rates used for calculating
plan sponsor contributions. The mandated rates are based
on a corporate bond yield curve. There was a provision to
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smooth these rates by the use of a 24-month average of a
three segment yield curve.
Shortly after the new rules became effective, the economic
downturn began, with the value of plans assets dropping
and interest rates declining, both significantly. In addition,
the Federal Reserve adopted policies to maintain low
interest rates for the next few years. The combination of
the reduced assets and the lower interest rates resulted in
significant increases in the minimum required contribution
to defined benefit plans.
Changes to your DB plan after MAP-21: The corridor
What MAP-21 does is to create a corridor around the
3-tiered segment rates used to determine your minimum
required contribution. This corridor is determined using