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Miller Gives Washington Update to ASPPA College of Pension Actuaries

admin | June 13, 2012 | 0 Comments

ASPPA News from the Field
ACOPA Advanced Actuarial Conference

BOSTON (June, 4, 2012)—The ASPPA College of Pension Actuaries (ACOPA) held its Advanced Actuarial Conference in Boston June 4 – 5. This conference is designed for practicing actuaries and those with related positions. Actuarial, legal and accounting experts lead a wide variety of sessions that were structured to allow for interaction with the speakers, as well as peers.

Judy Miller, Chief of Actuarial Issues and Director of Retirement Policy for ASPPA, provided an update on related activities in Washington and at the State level. Among other issues, Miller discussed the legislative outlook for pension funding relief, possible impacts on retirement plans of tax reform, and other potential legislation impacting retirement plans.

There seems to be general agreement in Congress that some form of minimum funding relief for defined benefit plans is needed due to the significant increases in minimum funding requirements caused by the historically low discount rates imposed on the funding calculations by the Pension Protection Act provisions and current low interest rates in the economy. A legislative vehicle that has some likelihood of passing in this legislative session is needed. The Surface Transportation Reauthorization Act, the “Highway Bill”, is a candidate. As it would be scored as a revenue raiser to offset other costs of the bill, the pension funding modification is viewed favorably as an addition to this legislation. Both the House and Senate have passed their own versions of the Highway Bill, but there are significant differences, including the disputed XL pipeline, that may hold up passage. In particular, the Senate version of the bill included detailed pension funding relief in the form of “interest stabilization”, which would provide that the discount segment rates used in the funding calculations would be restricted for 2012 to be within 10% of their historic average. This corridor would increase 5% per year in future years until it reaches 30% in 2016. These special rates would apply to minimum funding and benefit restriction calculations only, and would not be applicable to maximum deductible contributions or minimum lump sum distribution calculations.

Even if funding stabilization is included in an ultimately passed Highway Bill, it will likely be modified from what is in the Senate version. Some think the 25 year averaging period is too long, and that the relief should not apply to the benefit restrictions. Others, including the American Academy of Actuaries, have taken the position that funding relief should focus on the output results, rather than the discount rate inputs. The counter-argument is that by focusing on the inputs, decision makers can focus on the source of the problem, which is the current artificially low interest rates, and the role could be more quickly implemented, since the alternative based on a corridor around the previous year’s contributions would require a more extensive, and time-consuming, regulation writing process.

The so-called “Bush Tax Cuts” are due to expire at the end of 2012. If an increase in tax rates as of January 1, 2013 is to be avoided, legislation will need to be passed this year, either before the November election, or in a lame duck session after the election. The solution could range from a simple extension of some or all of the current tax rates to a “Grand Bargain” encompassing entitlement and major tax reform legislation. If the goal of the tax reform legislation is to significantly lower rates by broadening the tax base via the elimination of tax preferences, the current tax preferences for retirement plans could be at risk. It is hoped that Congress will be cognizant that the current tax incentives have been successful in encouraging employers to sponsor retirement plans and that employment based retirement systems have been the most successful way to help Americans save for retirement. Also, the tax incentives for retirement savings are a deferral of taxes, not a permanent exemption, as taxes are paid on the retirement income when received.

In addition to the items discussed above, during her presentation, Miller also discussed potential increases in PBGC premiums, other legislation not likely to pass this year, but indicative of the thinking of some in Congress, and the misguided attempts to provide defined benefit pension plans for private employers through a state sponsored plan.

—Bob Bostian
Chief Actuary | United Retirement Plan Consultants
ASPPA Member since 1983