PBGC suggested changes to Schedule SB

[My 2 cents]

The PBGC is trying to have the Schedule SB changed to require reporting the Funding Target for inactives broken down (as is done for actives) into vested and total amounts.

1. Is anyone out there including any non-vested benefits in the Funding Target for non-actives? If so, why? Most plans contain language that treats non-vested participants as forfeiting their benefits immediately upon separation from service (having been "paid" a lump sum of $0 for the "vested" portion of their accrued benefit), and such people are dropped from the Funding Target immediately, without having to wait for a full break in service to occur. True, if rehired the "forfeited" benefits are restored, but is anyone including anything in the Funding Target for people who have not actually been rehired?

2. If a participant terminates with partial vesting and, more than 5 years later, the plan terminates, does anybody think that the non-vested portion of the accrued benefit must be restored and paid out if the participant has not been rehired?

3. If a participant terminates with partial vesting and, after some years elapse without the participant having been rehired, the participant reaches normal retirement age, does anybody think that the non-vested portion of the accrued benefit must become vested and payable?

Some of us tried to put our heads together on this but we are having a great deal of difficulty imagining a situation where the Funding Target would include any non-vested benefits for inactives.

Are there many plans out there in which people who terminate prior to eligibility for a subsidized early retirement benefit (say unreduced benefits at age 60 with 30 years of service) are able to grow into the subsidy (the way ongoing employees can after a plan has terminated)? Since no further service would be accrued, the only way to grow into eligibility would be to already have enough service before termination of employment and then become old enough and actually claim it. In that case, wouldn't the right to the subsidy, contingent only on remaining alive until early retirement age and then claiming it, be considered vested?

What is the PBGC concerned about here?

[Andy the Actuary]

1. No

2. No

3. No

4. Not that I ever have valued any more than the partially vested beneft, but you cause me to wonder whether to include an actuarial assumrion that 0% are rehired. Then FT=VFT

5. Never seen

6. PBGC may be looking to beef up funding as a result of contingent liabilities but including non-vested benefits will increase funding very little and PBGC premiums not at all unless you were required to count non-vesteds in the premium census count.

[Draper55]

Agree with Andy's comments....further, what if the term vested dies and you do not find out about it for some time? Clearly now

they will not enhance their status by attianment of any age or return to service..In this case you would

be valuing additional benefits that could never be paid..with active lives and even with retirees to a lessor extent you

will know about their death much sooner and adjust the valuation appropriately..

[My 2 cents]

Key point is: Whether you are valuing anticipated subsidies that the vested term would grow into just by breathing enough times or not, under what circumstances would you ever include anything in the Funding Target for a participant who is employed by no member of the sponsor's controlled group that you would consider non-vested?

Absent information to the contrary, you would continue to recognize deferred benefits (and, presumably, any applicable pre-retirement death benefits that might become payable in the event the participant dies, to the extent that your assumptions include pre-retirement mortality) when calculating the Funding Target. There would be no reason to consider any portion of those benefits as non-vested (including any anticipated pre-retirement death benefits that would arise in the event the participant were to die before benefit commencement, based, as appropriate, on your assumption concerning the percent of participant who are married, since all conditions for payment save death would have been satisfied).

In asking for the change to the Schedule SB, the PBGC must think that there are benefits for participants no longer employed that are (a) non-vested and (b) being included in the Funding Target. If there are non-vested benefits for such people that the PBGC thinks should be included in the Funding Target, requiring the enrolled actuaries to divide the Funding Target for inactive participants into portions for vested benefits and portions for non-vested benefits would be entirely pointless, since no enrolled actuaries are recognizing any non-vested benefits for inactives in the Funding Target. If the PBGC thinks that there should be such amounts, wouldn't that have to be handled through IRS regulations requiring that the Funding Target include some such amounts (whatever they may be)? Absent such IRS regulations, all enrolled actuaries will go about their business including nothing that is not vested in the Funding Target for inactives, and if the PBGC prevails in getting the Schedule SB changed, all SBs will show $0 as the Funding Target for non-vested benefits for inactive participants, n'est pas?.

[Andy the Actuary]

4. Not that I ever have valued any more than the partially vested beneft, but you cause me to wonder whether to include an actuarial assumption that 0% are rehired. Then FT=VFT. Won't this take care of your concerns?

C'est vrai?

[My 2 cents]

4. Not that I ever have valued any more than the partially vested beneft, but you cause me to wonder whether to include an actuarial assumption that 0% are rehired. Then FT=VFT. Won't this take care of your concerns?

C'est vrai?

It always struck me as being implicitly there unless one assumed something to the contrary. Kind of one of those "goes without saying" assumptions.

Assume no future changes to document, assume for all future periods that the IRC Section 436 limits will not apply, assume no future increases in 415 or 401(a)(17) limits, assume no future hires or rehires, assume that all reported data items (date of birth, date of hire, gender, etc.) are correct until or unless information to the contrary is received, and so on.

[Andy the Actuary]

Agree. It goes without saying until the government makes it clear it is worth saying.