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Pension Funding Relief

In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) allowed sponsors of defined benefit plans to smooth out their minimum funding requirements. The initial act provided for a 10% funding stabilization corridor, which would reach 30% by 2016. Under the Highway Transportation and Funding Act of 2014 (the Act) which Congress passed and President Obama is expected to sign into law, the corridor will be extended until 2017.

The net effect of this change is to reduce the required minimum contributions for many defined benefit plans for plan years beginning in 2013 through 2017. If your plan has already had the actuary calculations prepared for 2013, you may elect to apply the new corridor beginning in 2014, so as not to have to redo all of the 2013 valuation work. Certain disclosure requirements have also been extended.

While plan sponsors may be relieved by the reduced funding obligations, be aware of higher contributions required when the funding stabilization corridor expires at the end of plan years beginning in 2017. For more details on the extension and its effect on plan sponsors, please visit our recent benefits alert titled Pension Funding Relief Under MAP-21 to be Extended Until 2017

Peter Alwardt is a Tax Partner specializing in employee benefits, tax and ERISA issues for domestic and international clients. He is a member of the American Institute of Certified Public Accountants and NY State Society of CPAs.

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