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Pension Reform

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President Obama signed into law the Surface Transportation Reauthorization Bill (P.L. 112-141) late last week. The legislation not only allocates funds for transportation and safety projects, but also continues to subsidize the federal student loan program, extends federal flood insurance programs and allows for “pension smoothing” in order to stabilize interest rates and contributions to defined benefit pension plans.

The pension provisions in the bill, which SHRM strongly supported, will essentially change the rules determining how organizations compute their pension liabilities to a defined benefit plan. Under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Pension Protection Act of 2006 (“PPA”), defined benefits plans are subject to minimum funding rules that require employers to make contributions to the plan in order to fund the plan’s benefits. With the passage of the re-authorization bill, the rules have been revised to allow for a change in the method to determine segment rates based on a statutorily-defined rate.

The legislation also sets forth rate increases that the Pension Benefit Guaranty Corporation (PBGC) will be allowed to charge employers with defined benefit plans. Single employer plan flat-rate premiums will increase to $42 per participant (from $35) for 2013 and to $49 for 2014, and will be indexed afterwards. Multiemployer plan flat-rate premiums will be increased by $2 per participant for 2013. For plan years beginning after 2012, the rate for variable-rate premiums ($9 per $1,000 of unfunded vested benefits) is indexed and the per-participant variable-rate premium is subject to a limit. The limit is $400 for 2013 with indexing thereafter. In addition, the rate for variable-rate premiums per $1,000 of unfunded vested benefits is increased by $4 for 2014 and another $5 for 2015.

For additional information on these rate changes and structural changes within the PBGC, click HERE to access the House-Senate conference report on the legislation. The sections of the report addressing the pension provisions can be found beginning on page 27 and 82 of the report.

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