Highway bill with pension provisions passes Senate, cleared for President

The Senate on July 31, 2014 approved the Highway and Transportation Funding Bill of 2014 (H.R. 5021), which contains the “pension smoothing” provisions that were previously approved by the House (see Pension Plan Guide Newsletter, Report No. 2049, July 29, 2014). The bill is expected to be signed by the President.

In 2012, Congress incorporated pension funding relief provisions in the Moving Ahead for Progress in the 21st Century Act (MAP-21). Under MAP-21, pension plan liabilities would continue to be determined based on corporate bond segment rates, which are based on the average interest rates over the preceding two years. However, beginning in 2012 for purposes of the minimum funding rules, any segment rate must be within 10% (increasing to 30% in 2016 and thereafter) of the average of such segment rates for the 25-year period preceding the current year. This provision was designed to stabilize the fluctuation of interest rates from year to year, resulting in fewer sharp declines and fewer sharp increases in interest rates.

The bill revises the specified percentage ranges (that is, the range from the applicable minimum percentage to the applicable maximum percentage of average segment rates) for determining whether a segment rate must be adjusted upward or downward. Under the bill, the specified percentage range for a plan year is determined by reference to the calendar year in which the plan year begins as follows:

• 90% to 110% for 2012 through 2017,

• 85% to 115% for 2018,

• 80% to 120% for 2019,

• 75% to 125% for 2020, and

• 70% to 130% for 2021 or later.

Source: The text of H.R. 5021, “Highway and Transportation Funding Act of 2014.”
Visit our News Library to read more news stories.