5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
On June 29, 2012, the House and Senate approved the conference report to the Surface Transportation Extension Bill of 2012 (H.R. 4348) (later renamed as the Moving Ahead for Progress in the 21st Century Act (MAP-21), P.L. 112-141), a highway reauthorization and student loan bill that contains provisions to stabilize pension interest rates and raise PBGC premiums. The bill would also extend the ability of employers to transfer excess pension assets to fund retiree health benefits and expand the provision to allow transfers for retiree life insurance. The President signed the legislation on July 6, 2012.
Pension interest rate stabilization
For pension funding purposes, plan liabilities are calculated by discounting projected future payments to a present value by using legally required interest rates based on corporate bonds: the lower the rate, the greater the liability. These rates have been "abnormally low" for a significant period of time, the Senate Finance Committee has noted, and, as a result, contributions for 2012 will be much greater than for prior years.
Under the bill, pension plan liabilities would continue to be determined based on corporate bond segment rates, which are based on the average interest rates over the preceding two years. However, beginning in 2012 for purposes of the minimum funding rules, any segment rate must be within ten percent (increasing to 30% in 2016 and thereafter) of the average of such segment rates for the 25-year period preceding the current year. This provision would stabilize the fluctuation of interest rates from year to year, resulting in fewer sharp declines and fewer sharp increases in interest rates. This provision would not apply with respect to participant disclosures. Participants will be informed of the funded status of their plan using current law interest rate assumptions and this change for three years, according to the SFC summary.
The pension funding interest rate stabilization provision is estimated to raise $9.394 billion in revenue over ten years.
PBGC premium increase
Under current law, employers that sponsor defined benefit plans are required to pay a fixed-rate premium to the Pension Benefit Guaranty Corporation (PBGC) equal to $35 per participant per year (indexed for inflation) and a variable rate premium equal to $9 per $1,000 in underfunding (not indexed for inflation). There is no limit on the variable rate premium. Multiemployer plans must pay premiums equal to $9 per participant, indexed for inflation.
The bill would: (1) adjust the variable premium for inflation beginning in 2013, (2) set a maximum variable premium of $400 beginning in 2013, (3) increase the variable premium by $4 in 2014 and by an additional $5 in 2015, (3) increase the fixed rate premium by $6 in 2013 and by an additional $7 in 2014, and (4) increase the multiemployer premiums by $2 beginning in 2013.
The PBGC interest rate provision is estimated to save $10.575 billion (including interactions with the interest rate stabilization provision) over ten years.
Source: Moving Ahead for Progress in the 21st Century Act (MAP-21), P.L. 112-141.
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