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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.
The House on July 9, 2008 approved by voice vote the Pension Protection Technical Corrections Bill (H.R. 6382). The bill would make a number of technical and substantive changes to the Pension Protection Act of 2006 (PPA; P.L. 109-280), including a clarification of asset smoothing. Earlier, the House passed a different version of PPA technical corrections on March 12, 2008 (H.R. 3361) without a smoothing provision (see CCH Pension Plan Guide Newsletter, Report No. 1727, March 24, 2008), while the Senate passed its version of PPA technical corrections (S. 1974) on December 19, 2007 (see Pension Plan Guide Newsletter, Report No. 1716, January 7, 2008). The Senate-passed version included a smoothing provision.
CCH Note: The value of plan assets had been determined, prior to the enactment of the PPA, on the basis of any reasonable actuarial method that takes fair market value into account. Under the PPA, the value of plan assets, generally, must be fair market value.
However, a plan may, alternatively, determine the value of plan assets by averaging (or “smoothing”) fair market values. Prior law allowed plan assets to be smoothed over five years and liabilities over four years. In addition, smoothing techniques were allowed to produce actuarial values of between 80-120 percent of current fair market value.
The PPA did not eliminate the smoothing of asset values. However, the averaging method must: (1) be permitted under regulations to be promulgated by the Secretary of the Treasury; and (2) may not provide for the averaging of fair market value over more than the period beginning on the last day of the 25th month preceding the month in which the valuation date occurs and ending on the valuation date (or a similar period if the valuation date is not the first day of the month). Under the PPA rules, the smoothing method must also result in a plan asset valuation of between 90-110 percent of the fair market value of the assets.
The requirement under the PPA that plan assets and liabilities be smoothed over two years had raised the specter of volatility in plan contributions that smoothing was designed to neutralize. The House bill would provide that, in determining the value of a plan’s asset under the averaging method, such averaging be adjusted for expected earnings as specified by the Secretary of the Treasury. Such an adjustment is in addition to the present law adjustments for contributions and distributions. Expected earnings are to be determined by a plan’s actuary on the basis of an assumed earnings rate for the plan that is specified by the actuary. The assumed earnings rate specified by the actuary could not exceed the applicable third segment rate.
In a statement, Rep. Earl Pomeroy (D-ND), a member of the House Ways and Means Committee and a key figure in pension legislation, hailed the House passage of legislation to make technical corrections to the PPA as a major benefit to the solvency of workers’ retirement plans. “By clarifying employers’ ability to use asset smoothing when determining their pension funding obligations, Congress has today given businesses a more predictable pension cost, giving them the freedom to preserve jobs and wages instead of meeting overly onerous funding obligations,” Congressman Pomeroy said. According to Pomeroy, in these uncertain economic times, asset smoothing “will prevent employers from being forced to divert millions more to their pensions that could otherwise be invested in their workers and help them weather these difficult times.”
Pomeroy has repeatedly called on Secretary of the Treasury, Henry Paulson, to provide proper clarification on proposed PPA regulations related to asset smoothing, most recently in a letter urging him to provide important guidance on how pension plan sponsors could comply with PPA proposed rules during 2008 while the Treasury finalized these regulations. The IRS has issued some guidance but has not fully addressed asset smoothing, so Congress is now clarifying its intent with the Pension Protection Technical Corrections Act, according to Pomeroy.
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