Legislation known as Moving Ahead for Progress in the 21st Century Act (“MAP-21”) recently became law. This law contains long-awaited provisions that permit sponsors of single-employer defined benefit plans to use stabilized interest rate assumptions for certain funding calculations, thus decreasing required employer contributions and improving plan-funding attainment percentages for many plans over the next few years. MAP-21 also increases PBGC premiums effective in 2013, and expands availability of excess asset transfers.
Interest Rate Stabilization.
Because using a lower interest rate results in larger projected future plan liabilities, the recent historically low interest rates have led to increased minimum contributions and lower funding attainment percentages for most sponsors of defined benefit plans. MAP-21 changes certain interest rate assumptions by taking into account average interest rates over the most recent 25 years (a higher rate, on average), rather than rates drawn entirely from the currently lower short-term rates.
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