On Monday, November 1, 2015, President Obama signed into law the Bipartisan Budget Act of 2015 (the “BBA”) which brings familiar changes for sponsors of defined benefit pension plans. Similar to the Moving Ahead for Progress in the 21st Century Act in 2012 (“MAP-21”), the BBA provides relief from pension funding obligations while increasing PBGC premiums.  The following summarizes the two major changes under the BBA that affect pension plans.

• Extension of MAP-21 Rates – Under the BBA, plan sponsors of single employer defined benefit plans may continue to measure pension liability using the 25-year average of segment rates plus or minus a 10% corridor (i.e., the MAP-21 rates) through 2020, with a 5% increase applying to each year thereafter through 2023. The corridor will remain at 30% after 2023.  Prior to enactment of the BBA, the 10% corridor was scheduled to increase by 5% each year beginning after 2017 through 2020, and would have remained at 30% after 2020.  With interest rates at historical lows, limiting the rates based on the 25-year average tends to increase the interest rates, and therefore lowers the minimum funding requirements.  Of course, the benefit to a plan sponsor from the decreased funding obligation resulting from the BBA extension of the MAP-21 rates will be offset by the increased PBGC premiums.

• Increased PBGC Premiums – The BBA increases both the annual fixed premiums and variable rate premiums that sponsors of single employer defined benefit pension plans are required to pay to the Pension Benefit Guaranty Corporation (the “PBGC”) effective for plan years beginning in 2017 through 2019.  The fixed premium is a per participant fee and the variable rate premium is based on the plan’s level of underfunding.

The increased premiums contained in the BBA are even higher than the amounts originally proposed and reported. The increased rates are as follows:

The BBA provides that after 2019, the fixed premium will be indexed for inflation.  The BBA also accelerates the due date for PGBC premiums by one month for plan years beginning in 2025.  Unlike Map-21, the BBA does not affect PBGC premiums for multiemployer plans.