PBGC variable rate

[FAPInJax]

A valuation is performed as of 12/31/2002. The assets on that date are $1,000,000. These assets include contributions for the calendar year 2002 of $500,000. Additionally, the client makes the final contribution in March 2003 of $75,000.

Now, it is easy to determine that in funding the plan, the valuation assets are $500,000 (ignoring potential interest for 412 prepayments for the moment). This is because the prepaid contributions for the current year are ignored for funding.

However, for PBGC Schedule A, the instructions for Line 3 appear to say that because the Determination Date is 12/31/2002 then the actuarial value of assets is used in the determination of the variable premium for 2003.

Is a client permitted to use the $575,000 (the prepaids during 2002 and the payment during 2003) on

line 3©?? The $75,000 would have to be discounted to the determination date but it is made prior to the premium payment date (which I read as one of the requirements).

The inclusion of this additional money would enable the client to avoid the variable rate premium entirely because then the assets would exceed the vested benefits.

Thanks for any and all comments.

[david rigby]

Assuming the plan year begins 1/1/03, the assets used to determine the 2003 PBGC variable premium should be $1M. If the $75K is accrued for the 2002 PY, then it can be included, with proper discounting.

[Blinky the 3-eyed Fish]

I assume you are using the general rule because of the 12/31 date you mention. In that case your line 3 items will be as follows:

3(a) - $1,075,000

3(b) - $75,000

3© - $75,000 - discounted from 3/03 to 12/31/02

So, it's just what pax said.

[mwyatt]

One other point, adding to Blinky's reply. Unlike the ACM, where you discount contributions at the variable premium rate, under General Test you discount contributions at your pre-retirement FSA rate.