A Regulatory Update on Retirement Plans—Where Will MAP-21 Take Us?
ASPPA News from the Field
2012 ACOPA Actuarial Symposium
CHICAGO (August 11, 2012)— The ASPPA College of Pension Actuaries (ACOPA) held its annual conference at the Drake Hotel in Chicago on August 10 – 11. Opening the session Saturday, conferees heard from several thought leaders about regulatory updates, with significant attention on the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) which was passed into law in early July. ASPPA’s Chief of Actuarial Issues Judy Miller served as facilitator for the session which included Tom Finnegan of the Savitz Organization, Michael Spaid from the Internal Revenue Service, and James Holland from Cheiron, Inc..
Finnegan led the discussion covering the highlights of MAP-21, and encouraged the audience to submit questions to the panelists. Finnegan often led the charge in light-hearted banter between the panelists about the need for guidance as pension plan sponsors face a looming September 15 funding deadline for 2011 (calendar year) plan years.
The main tenets of MAP-21 include interest rate stabilization, PBGC premium increases and additional disclosure requirements.
Finnegan cited recent analysis showing the impact on segment rates based on the application of the new minimum and maximum corridors on a hypothetical 25-year average. The impact over the first few years will be a dramatic increase in segment rates and minimal impact expected by the time the 2016 corridor is in place. Finnegan also cited a study prepared by his own organization, The Savitz Organization, that illustrated the impact on liabilities for plans with varying demographic makeup.
Of particular interest to the ACOPA Symposium attendees is the matter of valuing lump sums. While MAP-21 explicitly excludes the stabilized interest rates from use in maximum deductible contribution, 415 benefit limitations, and several other calculations, the small plan community is particularly interested in whether annuity substitution rules will be affected.
Annuity substitution rules [as spelled out in Regulation 1.430(d)-1(f)(4)] describe how plans that are funding to lump sums use the funding segment rates as a “proxy” to projected 417(e) applicable interest rates. The stabilized funding rates create a large disconnect between the 417(e) lump sum interest rates and funding rates, leading practitioners to worry that guidance would somehow negate the use of annuity substitution when funding to lump sums. Miller chimed in, “We do know what to do because we have final regulations (on annuity substitution) and they should propose a change to those final regulations if they want to modify how to handle annuity substitution rules for MAP-21. Congress was aware of the disconnect between the funding segment rates and the 417(e) lump sum rates when they were considering the law change.”
The panelists, and the audience members, felt that there were certainly a lot of unanswered questions. To that end, the slides provided a laundry list of items labeled “What we don’t know,” which included the stabilized rates themselves (since issued in Notice 2012-55), the manner of making various MAP-21 related elections, valuation of lump sums for funding purposes, handling of Top 25 HCE payout restrictions, §436 benefit restrictions where there is a material change due to stabilized rates, and at-risk calculations.
The attendees were treated to a healthy debate of unanswered questions surrounding MAP-21 and agreed that this September would be a very busy month as practitioners decide how to implement the law for calculation of 2012 AFTAPs.
Valerie Lopez, MSPA
Senior Actuary | Actuarial Systems Corporation
ASPPA member since 2009
Category: Member Focus
