MAP-21 pension plan changes

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MAP-21 pension plan changes

Postby Tigermoose » Fri May 03, 2013 10:33 pm

I recently received a notice from a past employer about changes to the pension. MAP-21 changed how the pension fund calculates its liabilities. Prior to MAP-21 pension plans determined their liabilities using a 2 year avg of interest rates. After MAP-21, now pension plans must take into account a 25 year avg of interest rates. This means that MAP-21 interest rates likely will be heigher and plan liabilities lower than they were under prior law. As a result, my former employer may contribute less money to the plan at a time when market interest rates are at near historic lows.

Should I be concerned about this? It seems like the law was changed to help mask over the fact that the pension funds are underfunded given the low rates. This method seems to assume that the 25 year bond bull market will more accurately reflect the next 25 years rather than the last 2 years of financial repression. Should I take action?
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Re: MAP-21 pension plan changes

Postby LadyGeek » Fri May 03, 2013 10:44 pm

This thread is now in the Personal Finance (Not Investing) forum (pension).
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Re: MAP-21 pension plan changes

Postby Random Musings » Fri May 03, 2013 11:10 pm

MAP-21' which was part of a transportation bill, was approved by Congress and has been phased in. IMHO, there is not much the OP can do if it applies to the company that is providing the pension. I believe one can inquire with the DOL to get more information.

Good luck.

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Re: MAP-21 pension plan changes

Postby Harold » Fri May 03, 2013 11:27 pm

Random Musings wrote:MAP-21' which was part of a transportation bill

The reason pensions are part of MAP-21 is because the law was intended to be "revenue-neutral". That is, government spending had to be exactly offset by government savings.

Congress saw a way to get pension plan sponsors to temporarily pay more in taxes -- by temporarily reducing the tax deductible amounts they were required to contribute to qualified pension plans. Their method for doing so involved stipulating that the interest rates used for determining target liabilities be within a corridor around 25-year average interest rates. The corridor starts out narrow -- hence has the immediate effect of reducing funding requirements. However, the corridor quickly widens over subsequent years, so the impact of the 25-year average goes away.

Within a short period of time (barring passage of other laws) you'll be back to what you're used to seeing.
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Re: MAP-21 pension plan changes

Postby Frugal Al » Sat May 04, 2013 1:33 am

The good news is that MAP-21 doesn't change the actuarial values for distributions. There were other laws/fines enacted to attempt to get pensions to get to full funding as well, a carrot and stick scenario, but it's a bit like kicking a dead horse.
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Re: MAP-21 pension plan changes

Postby Tigermoose » Sat May 04, 2013 8:28 am

Awesome. I love me some Bogleheads. You guys rock. I was worried about the fund being underfunded in future years and us having the pension reduced by the employer due to this MAP-21 change. Thanks for the great information.
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Re: MAP-21 pension plan changes

Postby scrabbler1 » Sat May 04, 2013 11:42 am

Tigermoose wrote:I recently received a notice from a past employer about changes to the pension. MAP-21 changed how the pension fund calculates its liabilities. Prior to MAP-21 pension plans determined their liabilities using a 2 year avg of interest rates. After MAP-21, now pension plans must take into account a 25 year avg of interest rates. This means that MAP-21 interest rates likely will be heigher and plan liabilities lower than they were under prior law. As a result, my former employer may contribute less money to the plan at a time when market interest rates are at near historic lows.

Should I be concerned about this? It seems like the law was changed to help mask over the fact that the pension funds are underfunded given the low rates. This method seems to assume that the 25 year bond bull market will more accurately reflect the next 25 years rather than the last 2 years of financial repression. Should I take action?


I got one of these the other day and am wondering the same thing. Thanks for posting the thread.
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