Legislation introduced

Contribution relief, which was included in bills last year, has been reintroduced this Congressional session in separate bills by the chairmen of the House Ways and Means Committee (Richard Neal) and of the House Education and Labor Committee (Bobby Scott) as HR 409 and HR 423, respectively. While final text is not yet available, the bills are reportedly identical in their provisions for single-employer DB funding relief.

The bills also include similar, but not identical, multiemployer DB reform provisions.

The Neal and Scott bills provide only temporary extension of amortization periods. However, if additional revenue is needed, especially if budget reconciliation is the vehicle that moves the issue through Congress, the amortization relief could be extended to more years or made permanent.

Funding relief

Funding relief is likely to include changes to:

• Amortization of shortfalls
• Interest-rate corridors

If the legislative vehicle is budget reconciliation, which seems likely at this time, the relief will have to be adjusted to comply with special rules, including addressing revenue impact in years after 2030.

Amortization shortfall changes

Contributions required to pay for plan underfunding and changes in underfunding because of investment gain and loss and experience gain and loss (for example, actual mortality differing from predicted mortality) are spread over time.

The bills would generally provide a sponsor a fresh amortization start (complete recalculation) and spread amortization over 15 years rather than seven years.

Interest-rate corridor changes

The higher the interest rate a plan can use to value plan liabilities, the lower the value of the liabilities. The interest rate is based on current and recent market interest rates, but the law places limits on this interest rate based on a corridor around a 25-year historical averages of interest rates.

The 25-year corridor was enacted to assure the required interest rate was not too low during the recent period of historically low rates. The corridor widens over time, thereby reducing the impact of the corridor on the required interest rate. The narrower the corridor around the 25-year average, the higher the interest rate plans may use to value the liabilities.

The bills would narrow the corridor to 5 percent (from 10 percent) starting in the 2020 plan year and keep it at 5 percent until 2026. Starting in 2026, it would gradually widen by 5 percent per year until it reaches 30 percent in 2030. In addition, the 25-year historical average would be limited so it was no less than 5 percent.

Segal will keep you informed of this constantly changing situation.