EBPAQC Alert No. 278 


    AICPA
     
    Congress Passes New Law Affecting Defined Benefit Plan Funding, PBGC Insurance Premiums and Section 420 Transfers; Upcoming EBP Webinars
           
      AICPA
    July 11, 2012
    EBPAQC Alert #278
     
     
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    Dear Center Members
     
    Congress Passes New Law Affecting Defined Benefit Plan Minimum Funding, Insurance Premiums Paid to the PBGC, and Section 420 Transfers of Excess Pension Assets

    Congress recently passed new legislation that may affect your defined benefit plan audit clients. While these changes will not affect your EBP financial statement audits, the changes may have significant repercussions for your clients. You may wish to become familiar with the details of this legislation in the event your clients consult with you about the effect of these changes on their plans. Specifically, the legislation (1) changes the interest rate stabilization used to calculate minimum funding for defined benefit pension plans; (2) increases the amount of insurance premiums that single and multi-employers are required to pay to the Pension Benefit Guaranty Corporation (PBGC) for defined benefit plans they sponsor; and (3) extends the ability of employers to transfer excess pension assets to fund retiree health benefits and expand the provision to allow transfers for retiree life insurance (section 420 transfers). These changes are included as revenue provisions in broader legislation entitled, The Moving Ahead for Progress in the 21st Century Act (MAP-21), which provides major highway funding and extends the subsidized Stafford loans interest rates for college students. The new legislation was signed into law by President Obama on July 6.

    Defined Benefit Plan Segment Rate Funding Stabilization. For defined benefit pension funding purposes, plan liabilities are calculated by discounting projected future payments to a present value by using legally required interest rates based on corporate bonds. 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 ten percent (increasing to 30 percent in 2016 and thereafter) of the average of such segment rates for the 25-year period preceding the current year. This provision would stabilize the fluctuation of interest rates from year to year, resulting in fewer sharp declines and fewer sharp increases in interest rates.

    Insurance Premiums Paid to the PBGC. Under current law, employers that sponsor defined benefit plans are required to pay insurance premiums to the Pension Benefit Guaranty Corporation (PBGC). Single employers currently pay a flat-rate premium equal to $35 per participant per year and a variable rate premium equal to $9 per $1,000 in underfunding. There is no limit on the variable rate premium. The new law increases the flat-rate premium to $42 per plan participant in 2013 and $49 per participant in 2014, and indexed for inflation thereafter. In addition, the new law increases the variable-rate premium that is assessed on employers with underfunded plans. Currently the variable premium is $9 per $1,000 of plan underfunding. The variable premium assessment will be indexed for inflation with increases in 2014 and 2015, with a maximum variable premium of $400 beginning in 2013 with indexing thereafter. Multiemployer plans currently pay premiums equal to $9 per participant and would also pay higher premiums to the PBGC beginning in 2013.

    Transfers to Retiree Medical Accounts and Transfers to Fund the Purchase of Retiree Group-Term Life Insurance. The law allows qualified transfers, qualified future transfers, and collectively bargained transfers from overfunded defined benefit plans to retiree medical accounts to be made through December 31, 2021. No transfers are permitted after that date. The law also allows qualified transfers, qualified future transfers, and collectively bargained transfers to be made to fund the purchase of retiree group-term life insurance. The assets transferred for the purchase of group-term life insurance must be maintained in a separate account within the plan ("retiree life insurance account"), which must be separate both from the assets in the retiree medical account and from the other assets in the defined benefit plan.

    Your plan clients may need to consult plan counsel and/or actuaries regarding any action necessary to comply with the new law.

    Click here for more information on the new law (PL-112-141), including the Conference Report (112-557) at the Library of Congress website. The pension provisions are in Title II- Revenue Provisions, Part 1, section 40211 (pension funding stabilization); Part 2, sections 40221 and 40222 (PGBC premiums); and Part IV, section 40242 (transfers of excess pension assets).

     
    Upcoming EBP Webinars


    Date


    Title and Description
    Click, open, save and close to add to your Outlook Calendar
    July 24, 2012
    2:00-3:15pm ET
    AICPA Conference Webcast, Correcting Plan Errors - 403(b) Plans - This is a rebroadcast of a session that was offered at the annual national EBP conference. This webinar will address the latest correction criteria for all qualified plans as well as recent IRS thinking on 403(b) best practices for correcting plan defects. Click here to register. Add to your
    July 25, 2012
    1:00-3:00pm ET
    EBPAQC Webinar - Investment Products Offered by Insurance Companies - This webinar will discuss the most common insurance company products offered to employee benefit plans, and the accounting and auditing considerations related to those investments. Click here to register. Add to your
    For EBPAQC webinars, Center Members can obtain two hours of CPE credit for a nominal fee of $64, or elect the option of viewing the webinar free of charge for no CPE credit. Please note that members must register for either option (CPE or no-CPE) through AICPA store at cpa2biz.com. Information on how to register for this webinar, will be sent shortly via an EAlert.

    For AICPA webcasts, registration is only available through the AICPA Store at cpa2biz.com. Registration discounts are offered to EBPAQC members. For questions about AICPA webcasts contact the AICPA Service Center at service@aicpa.org.
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    Sincerely,
    AICPA Employee Benefit Plan Audit Quality Center
     

     
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