On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the “IIJA”) into law. The President stated that the public would start seeing the infrastructure package’s effects within the next two to three months.
A group of bipartisan Senators reached an agreement with the Biden Administration on an infrastructure package that contains various elements of the President’s American Jobs Plan (AJP) in addition to the bipartisan Senate-passed Drinking Water and Wastewater Infrastructure Act, bipartisan committee-passed Surface Transportation Reauthorization Act and Surface Transportation Investment Act, along with the bipartisan committee-passed Energy Infrastructure Act. These bills evolved into the $1.2 trillion Infrastructure Investment and Jobs Act.
The IIJA contains the following sections that may affect qualified retirement plans.
- Section 80602 of the IIJA extends the interest rate smoothing provisions that affect the minimum funding requirements for most defined benefit pension plans. Lawmakers most recently extended these smoothing provisions in the American Rescue Plan Act of 2021 (“ARPA”).
- Section 80501 of the IIJA expands and streamlines the automatic 60-day extensions of many pension-related IRS deadlines for “federally declared disasters”. This provision may remove the need for the IRS to announce the extension of various deadlines in response to certain disaster events.
- Section 80604 of the IIJA terminates the employee retention tax credit (“ERTC”) early as of October 1, 2021.
The Pension Protection Act of 2006 generally requires the use of corporate bond interest rates when determining the minimum funding requirements for defined benefit pension plans. MAP-21, enacted in 2012, created the concept of an interest rate stabilization corridor. This provision mandated that the interest rates used to measure the minimum funding requirements could not be more than 10% above or below the 25-year average of corporate bond interest rates.
In the low interest rate environment that existed in 2012 and continues currently, the interest rate stabilization corridor serves as a reduction in the minimum funding requirement for defined benefit pension plans. When funding requirements are lower, they tend to reduce pension contributions and associated tax deductions, which, in effect, raises government revenue. The interest rate stabilization corridor in MAP-21 was initially scheduled to begin phasing out in 2013, but the relief has been extended several times, including under the IIJA.
Section 80602 of the IIJA delays the date on which the phase-out of the interest rate smoothing begins by an additional five years over the period set by ARPA. In addition, the Act extends the phase-out of interest rate smoothing to 2031 instead of 2026, as was provided initially under ARPA. This provision is expected to raise revenue by reducing the minimum tax-deductible contributions that plan sponsors must make to their defined benefit pension plans in any affected years.
Under the IIJA, the following revised corridor applies:
PRE-IIJA CORRIDOR IIJA CORRIDOR
YEAR MIN MAX MIN MAX
2021-2025 95% 105% 95% 105%
2026 90% 110% 95% 105%
2027 85% 115% 95% 105%
2028 80% 120% 95% 105%
2029 75% 125% 95% 105%
2030 70% 130% 95% 105%
2031 70% 130% 90% 110%
2032 70% 130% 85% 115%
2033 70% 130% 80% 120%
2034 70% 130% 75% 125%
2035+ 70% 130% 70% 130%
Disaster Relief Extension
Section 80501 of the IIJA expands and streamlines the automatic 60-day extension of numerous pension-related IRS deadlines for “federally declared disasters,” including:
- individual tax filing deadlines,
- pension contribution deadlines, including IRAs, and
- 60-day rollover deadlines.
These changes, which will avoid the need for specific IRS announcements in certain circumstances, apply to future federally declared disasters. Additionally, the IIJA includes “significant fire(s)” in the provisions for disaster relief. A “significant fire” is one “with respect to which assistance is provided under section 420 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act.”
The IIJA ends the ERTC early for most employers, retroactive to October 1, 2021, instead of January 1, 2022, as had previously been scheduled. Congress created the ERTC as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in 2020, and then was amended by the Consolidated Appropriations Act, 2021 (“CAA”) late last year, and then by ARPA in March 2021.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
Hall Benefits Law, LLC
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