The president has signed into law a transportation funding bill (H.R. 4348) that extends current fuel taxes and raises new revenue with several pension and retirement plan provisions.
The bill sets new highway spending levels and extends the taxes that currently fund transportation spending, including fuel excise taxes, the excise tax on heavy vehicle tires, the retail sales tax on heavy highway vehicles and the annual use tax on heavy vehicles. In addition, it raises revenue with several retirement plan and pension provisions.
The most significant provision will allow defined benefit plan sponsors to revalue their pension funding liabilities by using higher interest rates. Funding obligations were previously calculated using a two-year average of interest rates. Lower interest rates mean higher funding obligations. The bill will allow plans to use an interest rate within a specified range (increasing from 2012 through 2016) of the 25-year average of interest rates. The Joint Committee on Taxation estimates this change will raise $9.4 billion because businesses will put less money in their pension plans, which are tax-favored.
The bill will also raise an estimated $10.2 billion by increasing Pension Benefit Guaranty Corporation (PBGC) premiums on pension plans. The flat rate premium for single employer plans will increase from $35 per participant to $42 in 2013 and to $49 in 2014, indexed in future years. The variable premium ($9 per $1,000 of unfunded vested benefits) will be increased $13 in 2014 and $18 in 2015, plus indexing beginning in 2014. However, the variable rate premiums will be capped at $400 per participant.
The bill will also:
- allow federal employees to receive retirement benefits while working and without paying 10 percent early distribution tax for distributions before age 59½;
- extend the provision allowing transfers of excess pension benefits to retiree health plans through Dec. 31, 2021, and expand this provision to include transfers to group-term life insurance plans; and
- extend tobacco excise taxes to businesses operating "roll your own" machines.
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