Annuity Buy-in Liability Calculation

[LarryDavid]

For anyone that has experience with annuity buy-ins, how have you calculated the Funding Target liability for the purchased group?  I believe for accounting purposes the liability is set equal to the fair value of the GAC, but is that also true for the FT?  Or are we required to use the PPA-defined segment rates?

[Effen]

I don't think there is a "right" answer to this as the law never contemplated buy-ins.  We have continued to use the segment rates, but it has always generated a $0 MRC so haven't really had to think too hard.  We would probably think harder if the plan had a VRP premium.  Since the PBGC has no risk if a plan is 100% in a buy-in doesn't seem right that the sponsor would be required to pay a VRP.  I guess if that ever happened, we would probably have a conversation with the PBGC.  

[LarryDavid]

Thanks Effen.  I suppose if the plan were more than 100% funded then you're right, the MRC and PBGC VRP would both likely be $0 regardless of the methodology used.  If the plan were less than 100% funded, however, we'd have to think more about the 'correct' liability to use.  Though in either case I like your argument that a PBGC premium should not apply for a plan that is fully guaranteed under a GAC.  

[acm_acm]

I'm not an expert on this, but I would think you measure the total benefit obligation, FT, etc. and then treat the buy-in annuity as a plan asset valued at cash/surrender value.