Guidance issued on the effect of HATFA on PBGC premiums

The PBGC has issued a technical update providing guidance on the effect of the Highway and Transportation Funding Act of 2014 (HATFA) on PBGC premiums.

Note: The PBGC noted that its guidance supersedes any inconsistent guidance in the PBGC’s 2014 premium instructions but does not affect guidance in PBGC Technical Update 12-1, dealing with the effect of the Moving Ahead for Progress in the 21st Century Act (MAP-21), which continues to apply for plan years to which HATFA applies.

Election to use HATFA rates

MAP-21 provided stabilization rules that limited the volatility of discount rates used for certain funding and benefit restriction purposes by constraining them within a corridor around 25-year average rates. HATFA extends, through 2017 plan years, the period during which the narrowest corridor applies. The change is retroactive to 2013 plan years, but plan sponsors may choose whether to have the narrowest corridor (under HATFA) or the slightly wider corridor (under MAP-21) apply to 2013. Under IRS Notice 2014-53, plans may decide whether to use MAP-21 or HATFA rates for 2013 funding determinations as late as December 31, 2014 (or, if later, the due date for the 2013 Form 5500).

“The situation created by HATFA for the 2013 effective interest rate is unique,” the PBGC said. HATFA was enacted August 8, 2014, long after the end of most 2013 plan years (and close to the deadline for filing the Form 5500 annual report for calendar 2013 plan years). Yet it has retroactive application to 2013 years depending on decisions that may be made as late as December 31, 2014 (or, if later, the due date for the 2013 Form 5500). Like the 2013 Form 5500, the 2014 PBGC premium filing for calendar-year plans is due less than ten weeks after HATFA became law. In addition, the discrepancy in the variable-rate premium resulting from HATFA rates is generally modest, the PBGC said, in most cases likely less than the cost of making an amended premium filing.

Accordingly, in the exercise of enforcement discretion, the PBGC said that it will not require a plan that makes a 2014 premium filing using an asset value that includes 2013 contributions receivable discounted using MAP-21 effective interest rates and uses HATFA rates for 2013 funding purposes, to pay additional premium or late payment charges or amend its 2014 premium filing where all of the following conditions are met:

• The 2014 premium filing is due on or before December 31, 2014, and is timely made.
• As of the 2014 premium due date, the plan has not filed a 2013 Schedule SB based on HATFA calculations.
• The asset value reported in the 2014 premium filing included contributions made after the end of the 2013 plan year discounted using the effective interest rate that would have applied had HATFA not been enacted (i.e., based on the MAP-21 corridor).
• The plan’s contributions for the 2013 plan year made after the end of such plan year do not exceed $25 million.

Redesignation of 2013 contributions

Plans that redesignate 2013 contributions to 2014 in accordance with IRS Notice 2014-53 should amend their 2014 premium filings to exclude the discounted value of such redesignated contributions from the value of assets used to determine the 2014 variable-rate premium, the PBGC said. In general, such a redesignation will affect premiums for both 2014 and 2015. If the redesignation is made after the 2014 premium filing, the 2014 filing should be amended to reflect the higher premium.

Source: PBGC Technical Update 14-1.

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