HR 5021 Highway Bill

[My 2 cents]

Just wondering about a couple aspects of this bill:

1. Apparently, plan sponsors and their actuaries are going to have to consider what to do about 2013 plan years. It will be possible to defer recognition to 2014 and let the existing 2013 valuations stand or (especially if there are good reasons) revise the 2013 valuation once all of the various rates etc. have been promulgated. Such revisions could possibly eliminate anticipated funding deficiencies or retroactively negate missed quarterly contributions, although the percentage impact on 2013 Funding Targets is fairly small. Many plans will not derive a sufficient benefit from HR 5021 for the 2013 plan year (especially if the minimum required contribution as originally calculated has been met) to make revising the 2013 valuation worth while.

2. Apparently, any valuations already issued for 2014 will have to be revised. One can only presume now that the IRS will find a way to keep that from causing any qualification issues (i.e., plans that have been operating as limited under Section 436 of the code will be able to stop operating as limited, with no consequences for having administered the plan by not permitting full lump sums). It was a bit easier when MAP-21 was enacted in mid-2012 because the sponsor could avoid some awkwardness by electing to defer recognition of MAP-21 for funding and/or benefit limitations to 2013. This law does not seem to permit any such flexibility for the current plan year (whether intentionally or not).

3. The law appears to provide that the newly increased discount rates cannot be used to permit plans sponsored by companies in bankruptcy to pay accelerated benefits (that is, the certification of an AFTAP of 100% or more for that purpose cannot take the boosted segment rates under HR 5021 into account), although it appears that the HR 5021 rates can be used for that purpose during the 2014 plan year. Do people agree? Is it agreed that the MAP-21 rates can continue to be used to exempt plans sponsored by companies in bankruptcy from the limitations even after the 2014 plan year?

4. Contributions for many 2013 plan years will have to have been paid as early as mid-September, and 5500s, even with extensions, will have to be filed as early as mid-October. Do you think the IRS will issue sufficient guidance in time or should people be handling HR 5021 on a reasonable basis and hoping for the best?

What do people think about these things?

[Andy the Actuary]

1. I looked at one case. Revising 2013 will increase PFB. 2014 quarterlies made to date but now they is some excess. Combined, will eliminate 4th (1/15/2015) and 5th (9/15/2015) contributions.

2. Agree

3. No comment

4. Assume the IRS guidance will be analogous to when MAP-21 was implemented (e.g., allow revocation of credit balance waivers and credit balance dollar amounts applied)

Fortunately, I've yet to file any 5500s (all on extension) so 2013 can easily be revamped. Unfortunately, have already issued 2014 valuations so preference would have been for HR 5021 to allow for employers to elect not to apply for 2014 as well as 2013. Some of these valuations will need to be revised even though no contribution required!

[My 2 cents]

On the first point, since in many instances the purpose behind overpaying for the prior year is to bring up this year's AFTAP, we have no clients who have signed standing elections to add all excess contributions to the PFB.

This point is moot for those sponsors who have not yet finished paying for the 2013 plan year - if there is sufficient reason, the amount still owed for 2013 can almost certainly be reduced by revising the 2013 valuation.

I am hoping that when the bill has been signed, the signing will be reported in the daily BenefitsLink email.

[Andy the Actuary]

President Obama signed the bill on August 8.

[My 2 cents]

Thanks! Now I can refer to it by calling it "the new law" instead of the awkward* "piece of legislation passed by the House and Senate, which the President is expected to sign". I can remember HR 5021 but not The Highway and Transportation Funding Act of 2014 (HTFA 2014?). May I still call it HR 5021?

*Or should the word "awkward" be inside the quotes? Just asking because the law clearly allows electing out of recognition in 2013 but does not appear to permit doing so for 2014.

[FAPInJax]

Awkward still works as there are many unanswered questions to be resolved by the IRS and DOL.

As one actuary stated - "I am sure that IRS / DOL will be issuing clarifying regulations any day now."

[My 2 cents]

IRS Notice 2014-48 (giving August 2014 interest rates) provides the following definite information:

1. When referring to the Highway bill, HATFA is the correct acronym. You need not clutter up the reference by including any references to 2014.

2. For all 2014 actuarial valuations under IRC Section 430 (other than those plans using the full yield curve), the applicable funding segment rates are 4.99%/6.32%/6.99%.

3. For all 2013 actuarial valuations under IRC Section 430 (in the absence of a formal election to defer recognition of HATFA until 2014 or for those plans using the full yield curve), the applicable segment rates are 5.23%/6.51%/7.16%.

Further guidance is promised. One presumes that the further guidance will clarify the interaction of HATFA (and MAP-21?) with respect to IRC Section 436 as applicable to plans sponsored by companies in bankruptcy, any timing requirements for elections out of following HATFA for 2013 plan years, and escape routes for plans that had been operating under pre-HATFA AFTAP certifications and similar complications. It does not appear from the Notice that the IRS is entertaining any thoughts concerning allowing sponsors to elect to defer recognition of HATFA for funding and/or Section 436 purposes to 2015.

[Hojo]

Has anyone heard anything new on this? It seems like a black hole right now. Any sample documenets to opt out for 2013?

[Andy the Actuary]

Here's my sample language:

As President of Potrezebie, Inc., I hereby make the following election in respect of the Potrezebie, Inc. Defined Benefit Plan (the Plan): I elect for the Plan’s Enrolled Actuary to defer implementation of the interest rates prescribed under the Highway and Transportation Funding Act of 2014 for purposes of both Internal Revenue Code Sections 430 and 436 until the first Plan Year beginning in 2014. I understand that this election is irrevocable and that the 2013 actuarial report dated May 29, 2013 and 1/1/2013 AFTAP certification dated May 31, 2013 will not be revised.

I threw in "irrevocable" because that was part of the MAP-21 guidance and figured it applied. Anyway, it's moot because the election won't be revoked.

[dmb]

Do we think treatment of 110% test changes (lifting restrictions) should/will be treated similarly to changes to AFTAPs due to the HATFA rates?

[Andy the Actuary]

If the plan provision related to the 110% test refers to the Funding Target under 430, then since HATFA determines this FT, it should apply.