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The Resource for the Global Finance Profession

Pension and Benefits Interest-Rate Stabilization Approved

  • By Deborah Forbes
  • Published: 2012-07-11

On June 29, the last afternoon of the last workday before the July 4 recess, Congress passed a massive transportation appropriations bill that included an interest-rate stabilization provision supported by pensions and benefits trade groups, including the Committee on Investment of Employee Benefit Assets, or CIEBA

The stabilization provision, however, contains several modifications, including additional required information in the annual funding notice.

The bill also includes increased Pension Benefit Guaranty Corporation (PBGC) premiums that will raise about $8 billion, half of what the Obama Administration requested. The bill increases both the flat rate and variable rate premiums (VRP). The $35 per participant flat rate premium will increase to $42 for 2013 and $49 for 2014.

For plan years after 2012, the VRP (currently $9 per $1,000 of underfunding) is indexed for inflation. In addition, the VRP will increase by $4 for 2014 and another $5 for 2015, with a maximum VRP of $400 per participant limit.

The bill does not give PBGC discretion to set its own premiums in the future.

This increase in PBGC premiums effectively takes further premium increases off the table at the end of the year when Congress will again be scrambling to find further revenue to pay for tax extenders.

The bill also includes other pension-related changes, such as a provision to extend the ability of employers to transfer excess pension assets to fund retiree health benefits and expand it to allow transfers for retiree life insurance, as well as several PBGC governance provisions.

The bill establishes a new Participant and Plan Sponsor Advocate to act as a liaison with participants in PBGC-terminated plans and to assist plan sponsors in resolving disputes with PBGC.

Labor Department Regulatory Activity

The U.S. Department of Labor (DOL) recently issued Field Assistance Bulletin 2012-02, which provides informal guidance on the new participant disclosure regulations that take effect August 30. The new regulations require that certain disclosures be made for a plan's designated investment alternatives (DIAs).

Generally, plan sponsors must disclose each DIA's fees and performance against a benchmark. Although the new regulations do not specify the number of DIAs a plan must offer, the FAB notes that failure to designate a "manageable number" of DIAs raises fiduciary questions. The FAB guidance also provides that, while a self-directed brokerage window is not a DIA, in certain situations investments made through a brokerage window should be treated as DIAs.

The FAB states that if a non-designated investment is selected by "significant numbers" of participants, plan sponsors have a fiduciary duty to examine the investment and determine whether it should be treated as a DIA for purposes of the disclosure regulations. If a platform or window offers more than 25 investment alternatives, DOL will not require each alternative be treated as a DIA provided that at least three of the options satisfy the "broad range" requirement of ERISA section 404(c) and if any alternative selected by at least five participants (or 1 percent of participants if greater) is treated as a DIA.

CIEBA is working with DOL staff to determine what concerns prompted this new requirement and to look for other ways to address their concerns.

Deborah Forbes is executive director of CIEBA. For more information about CIEBA, clickhere .

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

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