withdrawal liability assumptions

[Guest toubledea]

Am reviewing a couple of withdrawal liability calculations

and fournd them both using PBGC rates for calculating

the unfunded vested benefits for purposes of withdrawal

liability though valuation interest rate is around 7.5%.

Aren't they both supposed to be the actuary's best

estimate? How can you have two best estimates?

Any guidelines when choosing interest rate for

withdrawal liability?

[Effen]

This question probably belongs on the multi-employer board.

That said, it is very common to use one set of assumptions for w/drawal calculations and another for funding. Two different purposes, two different assumptions.

What you describe is a very common method for determining w/drawal liability. For example, most of Segal's plans use a PBGC rate based set of assumptions for w/drawal calcs.

[Guest toubledea]

Sorry about the posting, I'm new to this and I didn't see a multiemployer

bb. The question really goes to why it's legitimate to use different rates

for measuring the same thing when it will be used for two different purposes.

That is, presumable the plan rate should be high to keep contributions down but

the rate for withdrawal liability would be low to maximize payments from

departing employers.

Has anyone ever challenged this on a fairness basis (departing employers I mean)?

It would seem that with funding ratios decreasing there will be some shocks on

the amount of WL payments if PBGC rates are being used.

[Effen]

Funding is based on long term assumptions since the plan will continue into the future, but the w/drawal liab. is based on immediate assumptions, recognizing the fact that you the employer are w/drawing and you need to cover your share based on today's rates.

Just like in the corporate world (pre PPA) where you funded the plan based on longer term rates, but you still had to do calc the Current Liability to see if you needed to put in some extra based on current rates.

[Guest toubledea]

Fair point.

If the plan were terminating we would need

that kind of money. Over the long term

a 7.5% interest assumption may be reasonable but

in the short term it may vary based on current

market conditions.

But under that logic there should be

years when the WL rate is higher than

the valuation rate? Has this ever

happened?

[JanetM]

You have to use the plans assumed rate of return for the withdrawal calculation.

[Effen]

I don't agree. Although the funding rate is a very common assumption for w/drawal purposes, it is not absolute, in fact Segal generally uses a PBGC based set of rates for most of their clients.

Do you have any basis for your statement?

[Guest toubledea]

I too would love to see a basis for JanetM's statement.

Though it's my opinion that she's correct I would

note that my opinions are not generally adopted

as regulations.

Any backup would be helpful.

[Guest Brian4]

The Segal PBGC Blend method is widely used, and there are cases where its use was challenged and the adjudicator upheld the method.

The Segal PBGC Blend method was used in the past when the PBGC interest rate was higher than valuation interest rates. In these circumstances, it can reduce withdrawal liability.

[JanetM]

Our withdrawal liability calculated by Sheet Metal Workers Pension Fund is the basis of my statement. After triggering this WL we did a lot of research into WD calculation and found the Plan tells the participating employer the amount due and rate used to calculate it.

To make it even worse, you have the pay the amount up front before you can even question the calculation.