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Bipartisan Budget Act of 2015 Brings Important Changes to Pension Plans

 

The Bipartisan Budget Act of 2015 (the “BBA”) was signed into law by President Obama on November 2, 2015. The BBA increases the Pension Benefit Guaranty Corporation ("PBGC") premiums for future years, but also extends the pension funding relief brought by the Moving Ahead for Progress in the 21st Century Act of 2012 (“MAP-21”).

 

The PBGC protects the retirement benefits of millions of workers and retirees in the United States. The PBGC derives its income from, among other sources, insurance premiums paid by pension plans subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Section 4006(a)(3)(A)(i) of ERISA imposes a flat-rate premium per participant of single employer sponsored plans. Also, Section 4006(a)(3)(E) of ERISA adds a variable rate based on the plan’s unfunded vested benefits. Section 501 of the BBA amends ERISA to increase the flat-rate and the variable-rate for plan years beginning 2017 through 2019 in accordance with the following tab:

 

           

 

In addition to the premium increases, Section 502 of the BBA amends Section 4007(a) of ERISA to accelerate the due date for paying the PBGC premiums for plan years commencing after December 31, 2024, and before January 1, 2026 (generally speaking, the 2025 plan year). For the 2025 plan year, the due date will be the 15th day of the 9th calendar month that begins on or after the first day of the premium payment year instead of the 10th calendar month.

 

With regards to pension liabilities, the MAP-21 allowed plan sponsors of single employer defined benefit plans to compute pension liabilities using the 25-year average of segment rates plus or minus a 10% corridor for 2012. The corridor width was scheduled under MAP-21 to increase to plus or minus 15% in 2013, plus or minus 20% in 2014, plus or minus 25% in 2015, and plus or minus 30% in 2016. Section 504 of the BBA amends Section 303(h)(2)(C)(iv) of ERISA in order to allow sponsors to continue computing pension liabilities using the MAP-21 plus or minus 10% corridor up to 2020. The plus or minus 5% increases will now be applied beginning in 2020 through 2023. Lower interest rates imply higher minimum funding liability. By extending the application of the MAP-21 segment rate stabilization, interest rates remain higher than what would have been before MAP-21, keeping the pension liability lower.

 

These changes affect significantly sponsors’ budgets for the 2016 fiscal year and short term financial planning.  The Enrolled Bill of the BBA can be accessed here.

 

 

 

 

©2016 Fiddler, González & Rodríguez, P.S.C. This Watch has been prepared by Fiddler, González & Rodríguez, P.S.C. for informational purposes only and does not constitute legal advice. This information does not create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. Fiddler, González & Rodríguez, P.S.C. and its members assume no responsibility to inform you of additional changes in law or any other legal issues related to the matters discussed in this e-mail.

 

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