Defined Benefit Plans – Immediate Action Required due to HATFA By: Lawrence PetersCPA, EA, AIF® 2014.08.25
On August 6, 2014 President Obama signed the Highway and Transportation Funding Act of 2014 (HATFA), which extends the funding relief for defined benefit pension plans originally provided by MAP-21. MAP-21 made changes to the minimum funding rules which subjected the segment rates applied for determining liability under the Pension Protection Act (PPA) for pension plans to minimum and maximum rates based on the average of each of the segment rates for the 25-year period ending on September 30 of the calendar year preceding the calendar year in which the plan year begins. This funding relief was based on applying a corridor around the 25 year rates that had a range of 90%-110% for 2012, increasing the range by 5% each year until reaching a 30% corridor in 2016 and later years. (The larger the corridor, the lesser the amount of funding relief). HATFA delays the increase in the corridor for 5 years.

Immediate action will be required to take advantage of the HATFA funding relief available retroactively for 2013 (before September 15, 2014 for calendar year plans), but will apply automatically for 2014 and later years.
Applying the HATFA funding relief to 2013 will reduce the required minimum funding contribution for 2013. However, should you elect to apply this relief to 2013, it may be necessary to amend and refile Form 5500 for 2013. Any reduction in contributions could result in an increase in your unfunded liability for purposes of determining your PBGC variable rate premium, and might also require amendments to your plan’s audited financial statements for 2013.

Your actuarial valuation for 2013, should you wish to apply the funding relief retroactively, and your actuarial valuation for 2014 if already completed, will need to be revised. Please contact your actuary to discuss the implications, as well as any additional fees required in order to revise these valuations. Further, regulations on the application of HATFA have not yet been issued. Your actuary can advise you about any uncertainties and how to proceed.
Lawrence R. Peters

Larry is a Senior Consultant at Westminster Consulting, LLC and is based in Princeton, NJ, Larry leads the Firm’s defined benefit practice. His experience includes plan design and funding, mergers and acquisitions, executive benefits and vendor benchmarking, among others.

Prior to joining Westminster...

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