Pension Funding Relief from MAP 21
a 25 year average of the segment rates. Beginning with
the plan year which starts in 2012, the 24-month average
segment rates must be within the specified rate corridor.
This corridor is as follows:
in these numbers. There will be a $400 per participant
limit on the variable rate portion of the premium and the
current cap on the variable rate portion for small plans
remains unchanged.
It is estimated that the rates for determining your minimum
required contribution will increase between 100 and 150
basis points which may result in a 10-15% reduction in your
plan liability and a reduction in your minimum required
contribution.
In addition there are additional reporting requirements
which apply to plans:
The benefit of this change will be felt in the next couple of
years due to the narrow corridor and the current low interest
rates. After 3 or 4 years, there may be little or no benefit
from this funding relief and, depending on interest rates,
it is possible that your minimum required contribution at
that time may be higher than under the current rules.
The use of this corridor is voluntary for plan years beginning
in 2012 and mandatory for plan years beginning in 2013
and thereafter.
MAP-21 changes only the basis for determining the
minimum required contribution; it does not change the basis
for determining the maximum tax deductible contribution
thereby increasing the flexibility for you to choose the
amount of contributions to make to the plan.
Other changes from MAP-21
In addition to the change in funding rules, the act provides
for an increase in PBGC premiums beginning in 2013.
The flat rate portion of the premium will increase from
the current $35 per participant to $42 per participant in
2013, $49 per participant in 2014 and will be adjusted
for inflation beginning in 2015. The variable rate portion
will increase from the current amount of $9 per $1,000 in
unfunded liability to at least $13 per $1,000 in 2014, and
at least $18 per $1,000 in 2015. These rates per $1,000 will
also increase with inflation, but that increase is not reflected
•
With more than 50 participants, and
•
The plan’s funded status is less than 95% before the
application of the corridor rates, and
•
The plan’s unfunded liability is more than $500,000
The Act did not provide relief from the requirement of
Internal Revenue Code Section 417(e) relating to the
minimum value of lump sum payments.
Ongoing Recommendations for Defined Benefit Plans
We continue to be sensitive to the issues of Defined Benefit
Plans, including:
•
The need to keep funding above the minimum level
to maintain contribution stability, and
•
The fact these new rules don’t really impact the
desirability of risk reduction. (The relief is temporary,
the accounting rules don’t change, and the long term
nature of the liability doesn’t change.), and
•
Continuing your conversation with your actuary to
determine the exact impact to your plan.
We look forwarding to continuing, and facilitating,
these discussions. n
www.conferomag.com | 11