American Rescue Plan Act

The Rescue Plan Act was passed by the House today and is expected to be signed by the president on Friday. The bill adjusts (increases) the segment rates for minimum funding starting in 2020, and (optionally for plan years starting in 2019, 2020, and 2021, and starting for everyone in 2022) replaces the 7-year shortfall amortization with a 15-year amortization.

How are you planning to handle the changes? Hopefully most of us have our 1/1/2020 valuations finished by now, are you contacting all your clients and letting them know they should expect a new minimum contribution calc? Are you going to discuss the shortfall amortization option with them, or just opt them all in (or out)? Or wait until your software supports it before even bringing it up?

Any other ideas or concerns about the new law?

Probably case by case analysis.  If we know the MRC is important to them, we will reach out.  If they are overfunded or contributing more than the MRC, they will probably just get the newsletter explaining what will happen.

Personally, I think PBGC premiums will be a much bigger driver of employer contribution decisions in the future.  

 

Agreed on PBGC premiums. It's disappointing that Congress didn't act to stabilize premiums in a similar manner to funding. Hopefully ARA will lobby for it whenever the next round of relief comes up. It's insane that the 1st segment for minimum funding under ARPA for 2021 is now 4.75% while for PBGC premiums it can be as low as 0.51%.

They won't lower them because the need the revenue.  Even though PBGC premiums go to the PBGC, they count as revenue under the Congressional scoring rules. 

It was interesting to hear the representatives from ABC on the CCA webcast yesterday.  Someone asked them if they considered the long term sustainability of the single employer funding changes and they replied, all they really cared about was getting the multi-employer relief passes and they needed the additional revenue created by the reduction in the single employer contribution requirements to pay for it.  No consideration of overall retirement security, just focus on the tax revenue it will create.

Interesting when you find out how the sausage gets made.

So is the optional until 2022 applicable to the rates or just the shortfall amortization?  As I read the act posted on Congress.gov it seems to be optional for both, see below, emphasis added. 

 

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I think you're right - I must have missed that section about the effective date that applies to the segment rates. The way I'm reading it is that the sponsor has to make an affirmative election to continue using the old segment rates for 2020 or 2021. So for a sponsor who fails to make any elections, the new segment rates come into effect for 2020 and the new shortfall amortization for 2022.

Effen, thanks for the insight. It's disheartening that the new rules undo a lot of the plan to get single-employer plans adequately funded under PPA. Perhaps ironically, the higher PBGC premiums might actually be justified now if plans are going to be less well-funded as a result of the changes made by ARPA.

Looks like there could be two different elections:

One - to use 15 years amortizations that could be applicable for plan years after 12/31/2018 or 12/31/2019 or 12/31/2020. In absence of election, it will be applicable for plan years after 12/31/2021.

Two - not to use new segment rates for any plan year after 12/31/2019 and before 1/1/2022 for either all purposes, or just for AFTAP under Section 436 of the IRC. in absence of election, it will be applicable for plan years after 12/31/2019

I am thinking that at this point, for a completed 2020 valuation, the options are:

• Obtain an executed election from the plan sponsor to use the pre-ARPA segment rates for the 2020 plan year, or
• Prepare a new 2020 valuation using the ARPA segment rates.

 

An irony in my mind is that multiemployer actuaries that certified funding results based on 8.50% or higher interest rates precipitated much of this.  Who policed that?   Or are they the police themselves?

ASOPs and ABCD.   

Well one that I have first hand knowledge of is still using 8.50%.  Not sure how that flies these days.

If you feel it is unreasonable, you should inform the ABCD.  (Not sure if you need to be an actuary, but I don't think so.)

However, just because the official valuation and Schedule MB show 8.5%, doesn't mean the actuary isn't providing a more reasonable valuation for internal purposes.  The Trustees may be fully aware of their obligations, even if government reporting is based on a more rosy outlook.  This is one area where I think ARPA may have a hole in its budget estimates.  A plan may decide now is a good time to change from 8.50% to 6.0% and push itself into a critical and declining situation.  No real advantage to that pre ARPA, but now the the government will pay benefits until 2051, it might make a lot of sense.  

   

I agree with the need for separate election for amortization relief vs. interest rate relief. I have a debate going about what options are available related to the interest rate relief. The text of the act states 

The amendments made by this section shall apply with respect to plan years beginning after December 31, 2019.

(2) ELECTION NOT TO APPLY.—A plan sponsor may elect not to have the amendments made by this section apply to any plan year beginning before January 1, 2022

As I read this, it means that the interest rate relief can first apply for 2020 plan years OR 2022 plan years. There are others I have spoken to that state you would also have the ability to optionally first apply interest rate relief in 2021. I think this was encouraged by the recent CCA webcast that stated "Effective for 2020 plan year with option to defer to 2022 or maybe 2021". Hopefully this is clarified when the IRS issues guidance, but in the meantime, any thoughts on how this is being understood?

 

On 3/17/2021 at 1:38 PM, John314 said:

I agree with the need for separate election for amortization relief vs. interest rate relief. I have a debate going about what options are available related to the interest rate relief. The text of the act states 

The amendments made by this section shall apply with respect to plan years beginning after December 31, 2019.

(2) ELECTION NOT TO APPLY.—A plan sponsor may elect not to have the amendments made by this section apply to any plan year beginning before January 1, 2022

As I read this, it means that the interest rate relief can first apply for 2020 plan years OR 2022 plan years. There are others I have spoken to that state you would also have the ability to optionally first apply interest rate relief in 2021. I think this was encouraged by the recent CCA webcast that stated "Effective for 2020 plan year with option to defer to 2022 or maybe 2021". Hopefully this is clarified when the IRS issues guidance, but in the meantime, any thoughts on how this is being understood?

 

I feel that you're reading more into in than is there.  "A plan sponsor may elect not to have the amendments made by this section apply to any plan year beginning before January 1, 2022." Is a plan year beginning January 1, 2021 a plan year beginning before January 1, 2022?  Yes?  If so, then the plan sponsor may elect not the have the amendments made by this section apply.