Bipartisan Budget Act of 2015 Includes Pension Funding Provisions and Repeals Automatic Enrollment Under the ACA

Practical Law Legal Update w-000-7283 (Approx. 6 pages)

Bipartisan Budget Act of 2015 Includes Pension Funding Provisions and Repeals Automatic Enrollment Under the ACA

by Practical Law Employee Benefits & Executive Compensation

Defined Benefit Plan Provisions

Plan Premiums

Section 501 of the BBA increases the annual Pension Benefit Guaranty Corporation (PBGC) premium rates for single employer pension plans.

Flat-Rate Premiums

Under the BBA, flat-rate premium for pension plans will be:

$64 for plan years beginning in the 2016 calendar year. This rate is the same as the previous flat rate.
$69 for plan years beginning in the 2017 calendar year.
$74 for plan years beginning in the 2018 calendar year.
$80 for plan years beginning in the 2019 calendar year.
$80, indexed for inflation, for plan years beginning after the 2019 calendar year.

Variable-Rate Premiums

Under the BBA, the variable-rate premium per $1,000 of unfunded vested benefits will be:

$33, indexed for inflation, for plan years beginning in the 2017 calendar year, which is an increase from the old variable-rate premium of $30, indexed for inflation.
$37, indexed for inflation, for plan years beginning in the 2018 calendar year.
$41, indexed for inflation, for plan years beginning in the 2019 calendar year and for following years.

The variable-rate premium cap of $500 per participant in 2016 would still apply.

Pension Payment Acceleration

As a way of increasing revenues, Section 502 of the BBA accelerates the due date of PBGC premiums from the ordinary date of October 15th (as established by 29 C.F.R. § 4007.11(a)(1)) to the 15th day of the ninth calendar month that begins on or after the first day of the premium payment year (September 15th for calendar year plans), only for plan years that begin in the 2025 calendar year. The acceleration raises revenue by bringing another year into the 10-year window used for budget-scoring.

Plan-Specific Mortality Tables

Section 503 of the BBA greatly expands the use of plan-specific mortality tables starting in plan years that begin in 2016. Under Section 303(h)(3)(C)(iii) of the Employee Retirement Income Security Act of 1974 (ERISA) and Section 430(h)(3)(C)(iii) of the Internal Revenue Code (Code), plan sponsors may use a mortality table if there is a sufficient number of plan participants, and the pension plans have been maintained for a sufficient period of time, to have credible information necessary so that the table reflects:

The actual experience of the pension plans maintained by the sponsor.
Projected trends in general mortality experience.

(29 U.S.C. § 1083(h)(3)(C)(iii).)

Generally, only very large plans can get IRS approval to use their own mortality tables.

Under the BBA, the determination of whether plans have credible information will be made in accordance with established actuarial credibility theory, which:

Is materially different from current IRS standards under Code Section 430(h)(3)(C)(iii), including IRS Revenue Procedure 2007-37.
Permits the use of tables that reflect adjustments that are based on the actual experience of the pension plans maintained by the sponsor and projected trends in general mortality experience.

Funding Stabilization Provisions

Section 504 of the BBA extends the stabilized interest rates used in calculating pension liabilities for purposes of the minimum funding rules under the Code and ERISA. These stabilized rates were established by the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21) and then extended through 2017 by the Highway and Transportation Funding Act of 2014 (HATFA). Under MAP-21 and HATFA, the stabilized interest rates used to estimate pension liabilities and determine employer contributions were limited to a specific corridor. The BBA extends these stabilized rates through 2023.

For more information on MAP-21 and HATFA, see Legal Updates, President Obama Signs Transportation Bill with Pension Funding Provisions and President Obama Signs the Highway and Transportation Funding Act of 2014 with Pension Funding Provisions.

Repeal of ACA Rule Requiring Health Plan Automatic Enrollment

Section 604 of the BBA repeals Section 18A of the Fair Labor Standards Act (29 U.S.C. § 218a), an ACA provision that would have required employers subject to the FLSA with more than 200 full-time employees to:

Automatically enroll new full-time employees in one of the employer's health plans, subject to any waiting period authorized by law.
Continue the enrollment of current employees in the employer's health plans.

For analysis of ACA automatic enrollment, see Practice Note, Automatic Enrollment under the ACA.

Practical Impact

Sponsors of single-employer defined benefit plans should be aware that the BBA increases the PBGC premium rates for upcoming plan years, but it also reduces plan minimum funding requirements by extending the MAP-21 interest rate corridor and allows for greater use of plan-specific mortality tables.

Employers burdened with other aspects of ACA compliance will welcome repeal of the automatic enrollment rules, which included special notice and opt-out requirements. In FAQ guidance from late 2010, the Department of Labor (DOL) indicated that employers would not need to comply with ACA automatic enrollment until implementing regulations were issued. Unlike most other ACA requirements, however, the government did not thereafter issue significant guidance to implement automatic enrollment.

Bipartisan Budget Act of 2015 Includes Pension Funding Provisions and Repeals Automatic Enrollment Under the ACA | Practical Law