align=”center”> Audio Recordings of the 2007 DB Summit Are Available Here
In a panel discussion at PLANSPONSOR’s DBSummit in Washington, D.C., Michael Barry, President of Plan Advisor Services Group, pointed out that, following passage of the Pension Protection Act (PPA) last August, plan sponsors and industry professionals have been provided guidance on a number of provisions within the legislation. Namely, we have been given a definition of “liabilities” for use in the new funded ratio calculation for defined benefit plans; definitions for the yield-curve and mortality rates to be used in certain DB plan calculations; and guidance for the benefit restrictions that will be placed on plans under a certain funded level, Barry said.
But, what do we still not know about the PPA and its implications? “We have heard no word yet on what ‘averaging’ means,” offered panel member Lonie A. Hassel, a Principal at the Groom Law Group. Barry explained that the legislation replaced smoothing with averaging as a method of determining DB plan assets – the numerator of the funding ratio – but we do not know the definition.
This is a big dilemma for DB plan sponsors. Hassel pointed out that, without that definition and the ability to use it in determining a plan’s funded ratio, more “unknowns” are created for plan sponsors. The funding status of a plan will determine its “at-risk” status, which will in turn determine its funding shortfall percent, Hassel said. These figures can trigger enhanced contribution requirements, and this is especially urgent for the 2007 plan year.
Additionally, plans with a funding ratio below 80% will be subject to various benefit and payout restrictions depending on the exact percentage, and participants must be notified of such restrictions 30 days prior to their effective dates – making the dilemma of no “averaging” definition even more dire, Hassel added.
So what are plan sponsors doing without knowing the definition of averaging? According to Barry, they are probably using fair market value in determining the value of assets, which is still an option for them post-PPA.
Barry added that Congressman Earl Pomeroy (D-North Dakota) has sponsored a bill asking that the effective date of certain funding rules be delayed for one year.