August 20, 2014
Council Urges Guidance of Funding Stabilization Provision in Highway Trust Fund Act
In an August 18 letter, the Council requested critically needed guidance on the funding stabilization provision contained in the recently enacted Highway and Transportation Funding Act of 2014 (H.R. 5021). The letter, submitted to the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS), stresses the urgency of releasing guidance with upcoming deadlines for calendar year plans for 2013 contributions and 2014 certifications of the plans’ adjusted funding target attainment percentage (AFTAP), and outlines suggestions for guidance by the Treasury and the IRS.
The funding stabilization provision in H.R. 5021 is essentially a five-year extension of defined benefit pension plan funding stabilization (or “smoothing”) measures originally passed as part of the previous transportation bill, the Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012. The original MAP-21 provision stabilized interest rates for purposes of calculating defined benefit plan funding by constricting the segment rates used to determine funding status within 10 percent of a 25-year average of prior segment rates.
In 2012, Treasury and the Service issued IRS Notice 2012-61, which contained very helpful guidance on how to implement the funding changes contained in MAP-21. The Council sees the Notice as an excellent starting point for guidance on H.R. 5061, and asks Treasury and the Service to apply the same rules under H.R. 5061as were applied in the Notice, except where circumstances require otherwise. (such as unlike in MAP-21, which was subject to a contrary election by the plan sponsor, Unlike MAP-21, H.R. 5061modifies the segment rates for a year prior to the year of enactment and thus Congress intended employers to be able to fully use the modified rates for 2013, despite the law’s enactment in 2014). The Council letter outlines areas where different guidance is needed for H.R. 5061 and provides several suggestions.