Legislative update - Ways and Means approves highway funding bill with “pension smoothing” provision 

July 10:  The House Ways and Means Committee today passed by voice vote a bill that would provide approximately $11 billion for highway funding, through May 31, 2015.

Legislation that is scheduled to be considered by the Senate Finance Committee this afternoon would provide a nearly identical amount of funding, according to a Ways and Means release (although with a different mix of revenue offset provisions and a modified pension provision).

The full House is expected to take up the bill next week.

Pension smoothing

The Ways and Means bill includes three revenue provisions—“pension smoothing,” extension of customs user fees, and a transfer from the Leaking Underground Storage Tank Trust Fund.

“Pension smoothing” refers to changes to the actuarial calculations for determining pension funding targets.

Currently, the minimum funding rules for single-employer plans specify the interest rates and actuarial assumptions used to determine the present value of benefits for purposes of a plan’s target normal cost and funding target. Present value is generally determined using three interest rates (“segment” rates)—each of which applies to benefit payments expected to be made from the plan during a certain period.

The proposal would revise the specified percentage ranges for determining whether a segment rate must be adjusted upward or downward. The adjusted segment rates would not apply to determine whether prohibited payments may be made from a plan when the plan sponsor is in bankruptcy. The plan’s adjusted funding target attainment percentage, determined without regard to the adjusted segment rates, would have to be at least 100% in order for prohibited payments to be made during bankruptcy.

Further, the proposal would revise the period of benefit payments to which the segment rates apply.

The adjustment, in general, would reduce tax deductible payments to fund pension plans, increasing the taxable income of employers and employees in the near-term; hence, the change increases federal tax revenue during the 10-year budget window.

Read a Joint Committee on Taxation description of the provisions—JCX-79-14 [PDF 70 KB]

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