MAP-21 Funding Relief Benefitted DB Plans

April 30, 2014 ( – The flexibility offered by the Moving Ahead for Progress in the 21st Century Act (MAP-21) benefited defined benefit (DB) plans, an analysis shows.

The bill expanded the period used for determining interest rates for calculating pension liabilities to 25 years—for 2012 the interest rates were required to be within 10% of the average of benchmark bond rates for the 25-year-preceding period (see “Congresses Passes Bill with Pension Funding Relief”). The provision helped plan sponsors because interest rates were much higher before the 2008 financial crisis, and the use of higher interest rates lowers pension liability calculations.  

According to an analysis by the Society of Actuaries (SOA), the category of plans most affected by the MAP-21 provisions in 2012, those receiving the minimum contribution amounts required by the amended law, included plans in a variety of funded positions, and not just plans with relatively low funded ratios.

Approximately 81% of the plans, and 91% of the aggregate funding target reviewed, had the stabilization provisions applied in the calculation of their funding requirements. Among those plans for which the stabilization provisions were applied, the average funding ratio improved from 88% in 2011 to 102.9% in 2012. By comparison, among those plans for which the stabilization provisions were not applied, the funding ratio declined from 104.6% to 101.9%.

In addition, the stabilization provisions reduced plans’ funding requirement as a percentage of funding target, on average, from 6.4% to 3.5% (from a total funding requirement of $59.5 billion to $30.5 billion). However, the data reveals many sponsors chose to contribute more to their plans than the reduced statutory requirement demanded.  Of the plans that had the stabilization provisions applied to the determination of their funding requirement, 59% received contributions in excess of the required amount for 2012.

Plans that received no excess contributions experienced the greatest utilization of contribution deferral because contributions (and credit for prior advance funding) just met the reduced requirements. As a category, the plans that had their funding requirements deferred by the stabilization provisions and received no excess contributions for 2012 were neither the worst- nor the best-funded plans.

The SOA notes sponsors can effectively reserve credit for the reduced 2012 funding requirements and apply the credit to future funding requirements. As a result, the reductions caused by the stabilization provisions may have value to sponsors regardless of the amount of contribution deferral utilized in 2012.

The "Utilization of MAP-21 Pension Funding Stabilization in 2012" fact sheet is here.