Inside the budget deal approved by Congress is a repeal of the automatic enrollment requirement of the Patient Protection and Affordable Care Act (ACA).
According to a bill summary, Section 611 of the Bipartisan Budget Act of 2015 (H.R. 1314) repeals Section 18A of the Fair Labor Standards Act, as added by the ACA, which requires employers with more than 200 employees to automatically enroll new full-time equivalents into a qualifying health plan, if offered by those employers. The repealed provision also requires employers with more than 200 employees to automatically continue health plan enrollment of current employees.
It is employers that sponsor defined benefit (DB) retirement plans, however, that will see the most effects from the budget bill. The bill provides that the single-employer fixed Pension Benefit Guaranty Corporation (PBGC) premium would be raised to $68 for 2017, $73 for 2018, and $78 for 2019, and then re-indexed for inflation. The variable rate premium would continue to be indexed for inflation, but would be increased by an additional $2 in 2017, and additional $3 in 2018, and an additional $3 in 2019.
Under current law, the due date for premiums is generally the 15th day of the 10th full calendar month of the premium payment year. The budget bill would bump that due date up to the 15th day of the ninth calendar month beginning on or after the first day of the premium payment year.NEXT: Mortality tables and funding stabilization
Under current law, private-sector DB plans generally must use mortality tables prescribed by the Treasury for purposes of calculating pension liabilities. However, plan sponsors may apply to use a separate mortality table if the table they want to use reflects the actual experience of the plan and projected trends, and if there are a sufficient number of plan participants and the plan has been maintained for a sufficient period of time to have credible information to back that up.
The Bipartisan Budget Act of 2015 would make it easier for DB plan sponsors to get approval to use mortality tables other than that prescribed by the Treasury. The determination of whether the plan has credible information would be made in accordance with established actuarial credibility theory, and a plan may use tables that are adjusted from the Treasury tables if the adjustments are based on a plan’s experience.
DB plans were given relief for funding calculations by the Highway and Transportation Funding Act of 2014 (HATFA). HATFA extended relief provided in the Moving Ahead for Progress in the 21st Century Act (MAP-21)—passed in 2012—which allowed defined benefit plans to discount future benefit payments to a present value using a 25-year average of bond rates rather than a two-year average. MAP-21 created a “corridor” of rates on either side of a 25-year average that were permissible for discounting purposes. If the two-year average falls outside this corridor, a company can use the 25-year average that is closest to the two-year average in the corridor. HATFA reset the corridor’s boundaries.
The budget bill would keep the corridor on interest rates at 10% through 2019, then increase it by 5% through 2023, and set it at 30% beyond that. This provision would generally be effective for plan years beginning after December 31.
While this provides relief to employers when calculating liabilities and determining required contributions to their pension plans, the bill summary notes that DB plan sponsors that choose to take advantage would have more taxable income because the contributions they elect to defer are tax-deductible when contributed. The provision is also estimated to result in increased PBGC premiums because sponsors that take advantage of the relief would have a larger base for purposes of computing the variable rate premium on underfunding.
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