How are other employers implementing GATT -- what criteria to use in c

[Dave Baker]

This was posted in a Q&A column on BenefitsLink, and I wanted to get the ball rolling here:

"We will be implementing the new GATT rates affecting lump sum conversions effective 1/1/2000 and would like to know what other companies are doing in terms of the "look back" month and the "stability" period. Are most plans going to a 2 or 3 month lookback and a monthly, quarterly, semiannual stability period?

[Wessex]

Almost all of the plans of which I am aware have selected a 2 month look-back. The stability period has generally been either annual or quarterly although I have seen a couple of semi-annual stability periods and a couple of monthly stability periods. The stability period selected appears to be influenced by the volume of expected distributions or the frequency with which PBGC rates were redetermined.

[david rigby]

I generally agree with Wessex. Almost all plans in our office use the annual stability period. There is great variation in the choice of lookback period, but it averages 2 months. Personally, I believe that 3 months should be the minimum, in order to give you sufficient lead time in doing lump sum calculations, but that choice may present a problem with the regs.

[Guest Ginny]

Have Wessex and pax experienced any fall out from employees by going to an annual, semi-annual, or quarterly stability period vs a monthly? We are currently on a monthly and are concerned about a perception of "lost benefits" by extending the stability period. Also, there seems to be a concern regarding funding issues by going to a stability period greater than a month. I would appreciate your comments.

[Wessex]

Except in the context of a very small number of spin-off plans, none of "my" plans have extended the stability period. I believe that if the stability period is changed by more than 2 months, the regulations require a one-year grandfather period during which the employee gets the better of the rate determined under the old or the new stability period. As a practical matter, the difference in the amount of a lump sum from changing to the GATT rates would probably dwarf any change in the stability period. I am assuming that you are contemplating changing the stability period in connection with adopting GATT rates; the analysis may be different if GATT rates have already been adopted and now only a change in the stability period is contemplated.

[david rigby]

I agree with Wessex, but I would convey some practical issues.

We have not changed the stability period on any plans, primarily so we don't have to face the grandfathering issue, but also because there is no compelling reason to change to something other than annual.

Also, the practical issue of doing a calculation of a lump sum, communicating to the terminated EE, getting response (including spousal signoff), and producing a check all point very strongly to the impossibility of using a monthly stability period. It also can be a problem with a quarterly stability period.

I don not see any significant "funding issues" here. If there is concern for funding adequacy, then the actuary should be using a post-retirement interest rate that reflects (at least approximately) the rate used for the lump sum calc. Of course, this could be a problem if market rates are changing rapidly.

Of bigger concern might be cash flow. For example, if a large lump sum is anticiapted in the near future (or even within two years) then some advance planning is appropriate. "Large" is a relative term, depending on the size of the fund.