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March 2021 | Pension Solutions
More Help on the Way? Implications of the Latest Proposed Pension Funding Relief
Emergency Pension Plan Relief Act (EPPRA) Update
In January 2021, House Ways and Means Committee Chair Richard Neal (D-Mass) introduced the Emergency Pension Plan Relief Act of 2021 (EPPRA) to address challenges faced by defined benefit plans. In February 2021, a COVID relief bill being considered as a part of the budget reconciliation process contained many of the same provisions included in the EPPRA.
One of the most significant provisions relates to an extension of funding relief for single-employer defined benefit plans, which was originally included in legislation passed in 2012 and has been extended several times over the past few years. Absent action by Congress, the effectiveness of the existing relief will start to diminish in 2021, potentially leading to higher contribution requirements for plan sponsors over the next several years.
The proposed legislation would not impact GAAP accounting, which is used to calculate funded status for balance sheet and income statement purposes, nor would it impact the calculation of funded status for purposes of calculating Pension Benefit Guaranty Corporation (PBGC) variable rate premiums.
Following prior iterations of funding relief, as a general matter we did not observe meaningful changes to plan allocations or hedging strategies given the continued importance of GAAP accounting. From our perspective, it may be the case here as well if this new funding relief is enacted.
Even with falling interest rates, the trend towards de-risking for many plan sponsors continued. As we look ahead, we highlight several themes for plan sponsors in 2021, including potential challenges with meeting expected return on asset (EROA) assumptions, the possibility of funding relief wearing away over the next several years, and the need for interest rate hedging precision, even in today’s low interest rate environment.