HATFA Update

The Highway and Transportation Funding Act (HATFA) has been passed by both houses of Congress and is expected to be signed by President Obama.  Although not the primary objective of the bill, HATFA expands on the Pension funding stabilization that was initially provided under the Moving Ahead for Progress in the 21^st Century Act (MAP-21).  Under MAP-21, an interest rate corridor was created beginning with the 2012 plan year that initially widened until 2016, when the corridor reached its ultimate levels.  Under HATFA, the corridor does not begin to widen until 2018 and will not reach its ultimate level until 2021.  The following is a summary of the changes in the interest rate corridors.

The changes under HATFA will cause an increase in the interest rates used to determine some pension plan liabilities which will result in reductions in the minimum required contributions through 2020.  In addition, the changes may allow some plan sponsors to avoid benefit restrictions under Internal Revenue Code Section 436.

The HATFA corridor changes are effective for the plan year beginning in 2013, although plan sponsors will have the ability to delay using the new rates until the plan year beginning in 2014.  The corridor changes are required for 2014 and any 2014 valuations that have been completed will need to be revised.  Once the bill has been signed into law, we expect to receive further guidance from the IRS regarding 2013 opt out elections.