Confero Winter 2014: Issue 5 | Page 13

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