Compliance News | November 16, 2021
Sponsors of private sector single-employer DB plans will receive additional funding relief in the bipartisan Infrastructure Investment and Jobs Act. President Biden signed the bill into law on November 15, 2021.
To calculate the amount of the minimum funding contribution, actuaries for single-employer DB plans must determine the value of assets and liabilities according to specific requirements. One of those requirements sets minimum and maximum permissible interest rates by limiting the applicable interest rate to a corridor.
The higher the interest rates a plan can use to value plan liabilities, the lower the value of the liabilities. The interest rates used for minimum funding are based on recent market interest rates, but the law places limits on these interest rates based on a corridor around a 25-year historical average of interest rates. The narrower the corridor around the 25-year average, the higher the interest rates that plans may use to value the liabilities.
The American Rescue Plan Act narrowed the corridor to 5 percent (from 10 percent) starting in the 2020 plan year and kept it at 5 percent until 2026. Starting in 2026, the law widened the corridor gradually by 5 percentage points per year until it reached 30 percent in 2030. In addition, the 25-year historical average around which the corridor is determined was limited so it is no less than 5 percent.
The Infrastructure Investment and Jobs Act will maintain the 5 percent corridor through 2030 and retain the rule that the 25-year historical average around which the corridor is determined is no less than 5 percent. Beginning in 2031, it will expand the corridor by 5 percentage points per year until it widens to 30 percent in 2035.
Plan sponsors should consult with their plan’s actuary regarding the impact on the plan’s future contributions.
This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.
Don't miss out. Join 16,000 others who already get the latest insights from Segal.