Funny Numbers in Annual Funding Notice

[tuni88]

I am a receiving a monthly lifetime defined benefit pension from a large company I used to work for and each year they send me an Annual Funding Notice. In comparing the 2008 notice to the 2009 notice I see that each of them, in the paragraph titled Fair Market Value of Assets, make this same statement: “For the Plan, fair market value is currently used as the actuarial value.”

The 2008 paragraph goes on to say that as of 12/31/08, the FMV of assets was $2.763 billion and the plan’s liabilities were $2.936 billion.

The 2009 paragraph goes on to say that as of 12/31/09, the FMV of assets was $2.945 billion and the plan’s liabilities were $3.384 billion.

All well and good so far.

The 2009 notice, on page 1 under the paragraph titled Funding Target Attainment Percentage, states that for the 1/1/09 valuation date the “Total Plan Assets” (line 2a) were $3.039 billion and “Plan Liabilities” (line 3) were $2.474 billion.

So how can the FMV of assets go up by more than ¼ billion dollars between 12/31/08 and 1/1/09?

And how can the liabilities go down by almost ½ billion dollars over that same 1 day period?

I called the toll-free number listed in the notices and put only the first question regarding assets to them. The response was that the asset value changed for three reasons: benefit payments, company contributions, and fluctuations in market value.

I pointed out that MV fluctuations didn’t make any sense since the markets are closed on New Year’s Day. It didn’t faze him. I then pointed out that probably the company was not open for business on New Year’s Day and likely wouldn’t be making a contribution that day. Also not fazed. And wouldn’t that be an awfully big contribution? No reaction. Then I asked wouldn’t benefit payments made on January 1 decrease, rather than increase, the asset number from the day before. Still not fazed. That’s how the conversation ended. (We didn’t talk about the change in liabilities -- can't imagine it could have gone anywhere useful.)

So what’s going on with these numbers? Anybody have any experience with this?

[Note to me: Mike 975908041701]

[Guest Matthew Gouaux]

Congratulations! You're one of the few people on this planet who have read their Annual Funding Notice. Many attorneys and actuaries spent long hours trying to understand what information should be included in the notice based on Field Assistance Bulletin 2009-01 (http://www.dol.gov/ebsa/pdf/fab2009-1.pdf), which answers a number of questions and provides a "model" annual funding notice. Comparing the notice you received to the model might help answer your questions.

[D Syrett]

Aren't the assets in the table based on "actuarial" assets (ie., may not be market value) whereas the assets quoted later on at the end of the plan year are market value?

[Effen]

The other issue is the notice is stupid, and intentionally contradictory from one year to the next.

The 12/31/2008 liabilities reported on the 2008 notice are estimated and based on PBGC rates (assuming they followed the guidelines). PBGC liabilities are not the same as funding liabilities since they are based on a different set of interest rates and are generally (but not always) used to determine the amount of the PBGC premium.

The 1/1/09 liabilities reported on the 2009 notice are based on the plan's funding target which is on a completely different set of interest rates.

The problem doesn't rest with your company giving you bad information, the problem is with our Congress and IRS who devised a notice requirement that forces your company to provide information before it is possible to calculate, and requires them to provide numbers that are labeled the same, but calculated differently from year to year.

Believe me; it can actually be worse for multiemployer plans where they could be getting two different notices on the same day with different information.

Remember this type of thing when you vote next!

P.S. It is refreshing to know that someone actually reads these things.

[david rigby]

The comments above are (for the most part) correct.

... the problem is with our Congress and IRS who devised a notice requirement that forces your company to provide information before it is possible to calculate, and requires them to provide numbers that are labeled the same, but calculated differently from year to year.

I don't want to excuse any of the IRS' mistakes, but this one belongs at the feet of the DOL.

[tuni88]

Aren't the assets in the table based on "actuarial" assets (ie., may not be market value) whereas the assets quoted later on at the end of the plan year are market value?

Yes, but, as indicated in the original post, the notice explicitly says actuarial value = market value.

So, does anyone have a guess how the MV of assets could change by so much between 12/31/08 and 1/1/09?

[tuni88]

Remember this type of thing when you vote next!

P.S. It is refreshing to know that someone actually reads these things.

Those guys and gals were already shown the door, weren't they? Now who do I vote against?

Alas, I'm not really "someone" exactly. I only read/study my own AFN cuz I kinda sorta know a little about them due to fact that I help administer a small plan here at work that issues them. Don't have our 2009 notice yet to compare it with what we distributed for 2008.

[tuni88]

Wait, I know. Write in tuni88 in 2012. I promise the employee benefits community to act strictly on your behalf as a benevolent dictator. (Fingers not crossed.)

[My 2 cents]

One thing that could be happening is that there were receivable contributions for 2008 made after the date the 2008 notice was given out (for a plan with assets in the billions, I am going to assume that there are more than 100 participants, so the notice was due by the end of April 2009). Those contributions would not have been included in the 12/31/08 assets shown on the 2008 notice (which are supposed to include, at most, receivables that had actually been paid by the date the notice is issued), but having been paid prior to the 9/15/09 deadline, they would, after discount, have been included in the 1/1/09 assets.

It is certainly confusing. On the liability side, the funded percentage information is based on the calculations for minimum funding and the end of year liability information is based on something not quite the same as the methods used to measure premiums payable to the Pension Benefit Guarantee Corporation. It really is a case of apples and oranges

But to think that someone not only reads the notices, but compares them from year to year! Something about that restores my faith in humanity.