PBGC calculations

[FAPInJax]

The calculation of the PBGC variable premium is based on the methodology used during your normal valuation. An assumption of 100% lump sums is made for 1/1/2008 for the valuation. Lump sums in the plan are defined to be the greater of AE or the 417(e) rates - using the proposed regulation method of funding interest segments. The PBGC though has different interest rates (4.93, 6.13 and 6.69) for purposes of calculating their liability. How is the lump sum calculated for PBGC purposes?

a Lump sum is computed using the greater of PBGC rates or AE

b Lump sum is computed using the greater of 417(e) per the valuation OR the lump sum at retirement discounted to attained age using PBGC rates

c Something else

Thanks in advance for any and all comments.

[SoCalActuary]

Let's assume a single retirement decrement at some future age.

I would value the benefit as the expected plan lump sum for the current vested accrued benefit, discounted to today on the PBGC 3-tier assumptions. That future lump sum would be the greater of the plan value or your expected 417(e) value, which you have to guess. If it is a cash balance plan, then you are also making an assumption for the future growth on the account.

Others may disagree, but you asked my opinion.

[Blinky the 3-eyed Fish]

You have two choices initially in how to value the premium funding target, 1) the alternative funding target which should yield the exact same vested liabilities as your actuarial valuation, or 2) replace segment rates used in the valuation with PBGC segment rates.

Now I have a different opinion that SoCal about valuing the lump sum for the premium funding target under #2 and here's why. The lump sum at payment date is the greater of plan value or the value determined using the valuation segment rates (not actual 417(e) rates if effect). That value is then discounted at the appropriate single segment rate to determine the funding target. Now that you are valuing the benefit for PBGC purposes, it makes the most sense to me to replace the valuation segment rates with the PBGC segment rates in both determining the lump sum at payment date and for discounting.