PBGC Premium Funding Target

[Andy the Actuary]

A plan's PBGC variable premium rate was determined using the "Standard Funding Target" for 2008 and 2009. May the plan adopt the "Alternate Funding Target" as it's variable premium determination basis starting in 2010 (for 2010-14)?

[My 2 cents]

I think that the sponsor may elect at any time to move from the standard funding target (PBGC assumptions) to the Alternate Funding Target (PPA minimum funding assumptions) at any time. Once there, you stay for 5 years. I don't think it was a limited opportunity. Bear in mind that it can work against you - the PPA funding is based on smoothed rates and the PBGC funding target is based on one-month spot rates. And in any event, you cannot use smoothed asset values for PBGC premium purposes, only market value.

[Andy the Actuary]

I think that the sponsor may elect at any time to move from the standard funding target (PBGC assumptions) to the Alternate Funding Target (PPA minimum funding assumptions) at any time. Once there, you stay for 5 years. I don't think it was a limited opportunity. Bear in mind that it can work against you - the PPA funding is based on smoothed rates and the PBGC funding target is based on one-month spot rates. And in any event, you cannot use smoothed asset values for PBGC premium purposes, only market value.

Thank you. That's what I thought. This decision depends upon which way you believe the wind is blowing. Had the Alternate Funding Target been used for a plan I'm reviewing, the variable premium would have been greater in 2008 and 2009 and substantially less in 2010. I would recommend saving the "get out of jail free" card for a year where the difference is huge and then as you indicate, only with full knowledge that today's win could be tomorrow's loss.