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April 5, 2021 By Mark Schulte Leave a Comment

ARPA Pension Funding Relief – Don’t Forget the Elections!

By now most single-employer pension plan sponsors know of the significant minimum required contribution relief in the American Rescue Plan Act of 2021 (ARPA). These include (1) extending the length of time for paying down unfunded liabilities and (2) adjusting the interest rates used to calculate liabilities and payment amounts.

However, the default timing of when these two relief provisions apply (payment period and interest rates) are not coordinated. Plan sponsors must make two important elections.

1. The extended 15-year amortization period doesn’t apply until the 2022 plan year, unless plan sponsors affirmatively elect to use it for the 2019, 2020, or 2021 plan years.

2. The updated interest rate stabilization provisions apply retroactively to plan years beginning in 2020, unless plan sponsors elect to delay application to the 2021 or 2022 plan years.

So, if a plan sponsor wants to go the “easy route” and implement all ARPA funding relief provisions in 2021 then they’ll need to affirmatively elect to use the 15-year amortization period in 2021 and decline to use the interest rates stabilization provisions in 2020 (i.e., they’ve decided not to re-do the 2020 actuarial valuation and AFTAP certification).

Of course, there are many nuances to these decisions such as deciding whether to delay applying the new interest rates for combined funding and benefit restriction purposes or just delaying for benefit restrictions. Plan sponsors will need to work with their actuaries to evaluate their specific circumstances.

Just be sure that you have formal documentation of which choices you’re making – it’s likely that the default ARPA timing provisions won’t be the right fit for many pension plan sponsors.

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Filed Under: Cash balance plans, Defined benefit plans, Private pensions, Social Media, Uncategorized Tagged With: arpa, pension funding relief

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