Compliance February 16, 2007

PBGC Guidance Explains Mortality Table Effects on Liabilities, Reporting

February 16, 2007 (PLANSPONSOR.com) - The nation's private-sector pension insurer has issued a guidance document explaining how new mortality tables for determining current liability affect premium calculations and other requirements such as PBGC plan reporting.
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The new mortality tables from the Pension Benefit Guaranty Corporation (PBGC) are used to determine liabilities for plan years beginning January 1, 2007, and trigger several changes to the way unfunded vested benefits (UVBs) are determined for the purposes of calculating PBGC’s variable rate premium, according to the agency.

The change also affects reporting requirements under Employee Retirement Income Security Act (ERISA) sections 4010 and 4043, the PBGC said. For example, 4010 generally requires a controlled group to report to PBGC if the aggregate UVB in plans maintained by the controlled group, as determined for VRP purposes under ERISA section 4006(a)(3)(E)(iii), is greater than $50 million.

According to the document, the new tables will be used to determine 2007 UVBs by a General Rule filer whose snapshot date for the 2007 premium payment year is the first day of the 2007 plan year or a filer whose snapshot date occurs in a short 2007 plan year.

The document said when new mortality tables for calculating current liability become applicable to a plan, two changes occur to the assumptions and methods for determining UVBs for purposes of the variable-rate premium:

  • The “applicable percentage” used to determine the VRP interest rate (used to value benefits) increases from 85% to 100%.
  • The fair market value of plan assets, rather than the actuarial value of assets, must be used.

For premium payment years beginning in 2007, the VRP interest rate used for determining UVBs is 100% of the Composite Corporate Bond Rate.  In addition, for such years, the fair market value of plan assets must be used to determine UVBs regardless of which calculation method is used, the agency said.

The guidance is here . 

More information about the mortality tables is here .

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