On November 2nd, the President signed legislation that will raise the debt ceiling through March 2017. The legislation includes important provisions relating to pension funding, PBGC premiums, and the Affordable Care Act.
The legislation extends through 2023 the “pension smoothing” provisions that were originally implemented in 2012 as part of the Moving Ahead for Progress in the 21st Century (MAP-21) Act. MAP-21 increased the discount rate that employers can use for funding their pension obligations, thus resulting in lower contributions to their single-employer pension plans.
The legislation also increases the fixed premium that sponsors of single-employer pension plans pay to the Pension Benefit Guaranty Corporation. The fixed rate, currently set at $64, will increase to $69 in 2017, $74 in 2018, and $80 in 2019. After 2019, the fixed premium will be adjusted for inflation. The variable rate premium will continue to be indexed for inflation but will also increase by a flat dollar amount in 2017, 2018 and 2019. This significant premium increase comes on the heels of another significant increase in 2012 under MAP-21, and is expected to cause even more single-employer plan sponsors to explore strategies to reduce the number of their pension plan participants through lump sum window programs, annuity buyouts, and the like.
Finally, the legislation eliminates the Affordable Care Act’s automatic enrollment requirement for large employer-sponsored health plans. This provision, had it been implemented, would have required employers with 200 or more employees that offer health coverage to automatically enroll full-time employees in their health plans. The Department of Labor had not yet issued guidance implementing this requirement, and it was unclear how employers would have had to comply the provision. The elimination of this ACA requirement is therefore a welcome development for large employers.