Lump sum based on a GATT minus rate

[dmb]

We have a few plans that did not adopt the PPA lump sum rates and instead are on a GATT minus rate. For example if a plan values lump sum based on the 30 year treasury rate minus 2.75%. The February 30 year treasury rate is 2.57%. To value a benefit under this scenario would result in a negative interest rate. We are thinking this ok, but does anyone think there should be a 0.00% floor for this purpose? Thanks in advance for all responses.

[david rigby]

Well, just my opinion, but it seems pretty obvious that you cannot have a negative rate. Perhaps your plan needs a clarifying amendment.

BTW, I think the plan must adopt the PPA minimum.

[Andy the Actuary]

Just an opion without any research: So long as produces rate that produces lump sums as least as great as the Applicable Interest Rate should be okay. It's simply another form of subsidy. Obviously, disclosure of a negative interest rate can raise eyebrows.

[John Feldt ERPA CPC QPA]

Although not particularly related to the topic, there are some banks that charge negative interest rates (not in the US though that I know of anyway).

http://www.nytimes.com/2014/12/19/business/switzerland-central-bank-interest-rate.html?_r=0

http://www.bbc.com/news/business-30528404

[Andy the Actuary]

Although not particularly related to the topic, there are some banks that charge negative interest rates (not in the US though that I know of anyway).

Could you please provide some names. I might lose less money that way than investing in the market.

[John Feldt ERPA CPC QPA]

Swiss National Bank

Headline, The New York Times: Swiss National Bank to Adopt a Negative Interest Rate

By David Jolly,

December 18, 2014

PARIS — Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand.

The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22.

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