DB interest rates changing from Treas rates to Bond rates

[Lori H]

With interest rates used to convert accrued benefits to lump sums in the process of changing from US Treasury rates to corporate bond rates, and being phased in over the 2008 to 2012 plan years, would it not be cheaper to pay out lump sums 3 years from now than it is today, considering bond rates are higher? This would be something to consider if deciding whether to terminate a DB plan or not? yes?

One member of a multiple employer plan maybe purchased soon and they are trying to determine whether to spin off, freeze or terminate current DB plan.

[Andy the Actuary]

Hold onto to your crystal ball for dear life. You have a gem if it can accurately predict that interest rates will be higher in three years.

[david rigby]

Of course, Andy is correct w/r/t predicting the future.

However, it's an easy exercise to calculate a PV assuming the rates don't change and you find that the LS probably goes down, just as you suppose.

But, there are other factors when considering the question of terminating the plan. Always good to talk to your actuary!

[Andy the Actuary]

Lori, David is correct in what I infer from his answer: I could have been nicer. I apologize. It's simply we get so wrapped up in theory that we (me too) sometimes overlook the reality of the situation.

So, let me offer something that may be of value. Just like with a multi-employer plan, there may be a cost of withdrawing from the multiple employer plan that may govern the client's decision. They can't really terminate per se. They'd have to spinoff and then terminate and when they spunoff, that's where the withdrawal cost could be incurred. Then, there may be additional costs of terminating depending upon what subsidies would have to be assumed to be grown into Depending upon what the plan document says, it is reasonalbe to anticiapte they should be able to freeze benefits under their portion of the plan.

[Lori H]

Lori, David is correct in what I infer from his answer: I could have been nicer. I apologize. It's simply we get so wrapped up in theory that we (me too) sometimes overlook the reality of the situation.

So, let me offer something that may be of value. Just like with a multi-employer plan, there may be a cost of withdrawing from the multiple employer plan that may govern the client's decision. They can't really terminate per se. They'd have to spinoff and then terminate and when they spunoff, that's where the withdrawal cost could be incurred. Then, there may be additional costs of terminating depending upon what subsidies would have to be assumed to be grown into Depending upon what the plan document says, it is reasonalbe to anticiapte they should be able to freeze benefits under their portion of the plan.

Well, that is what they are trying to consider. How much it will cost to terminate, freeze, spin off the current member of the multiple and it was actually the plan actuary who mentioned that corporate bond rates are higher, so it will PROBABLY be cheaper to pay out lump sums in 3 years than it is today. Probably being the operative word.