How are GATT interest rates determined? Is there a website that lists

[Guest mary walsh]

How are GATT interest rates determined? Is there a website that lists past and current GATT rates?

[david rigby]

The Society of Actuaries maintains an excellent resource called Statistics for Employee Benefit Actuaries. The item you want is in Table 1A.

http://www.soa.org/library/stats/seb.htm

In general, the rate that has come to be known as the "GATT rate" is the monthly average of the 30-year Treasury yield rate (note that this is not the rate on the last business day of the month). Perhaps someone else knows of a site, possibly IRS or Federal Reserve, where this is also posted.

[Dave Baker]

Another source:

http://www.benefitslink.com/links/19990524...24-001908.shtml

[Guest mary walsh]

Thank you. The chart is very helpful. I terminated my employment Nov 97 and am 100% vested in a DB. I am about to take my lump sum distribution but am skeptical of the lump sum valuation. My "BENEFIT DETERMINATION HISTORY" states:

DATE LUMP SUM (PBGC) RATE These rates are

5/15/99 $115,378 4.00/4.00 inconsistent with

7/15/99 116,294 4.00/4.00 PBGC rates stated

5/15/00 120,916 4.00/4.00 in the charts

9/01/00 108,452 5.00/4.25

11/01/00 109,286 5.00/4.25

[Guest mary walsh]

Sorry, ran out of room.

Basically the rate stayed the same from May 2000 until the present. So why did my lump sum decrease so much?

[david rigby]

Apples and oranges. I suspect the following:

1. The plan year is the calendar year.

2. The plan formerly used the PBGC rates to determine the value of a lump sum.

3. The interest rate defined in the plan (for the purpose of determining a lump sum value) was the PBGC rate in effect at the beginning of the plan year (that is, 4.0% at Jan. 99, and 5.0% at Jan. 2000).

4. The plan has been amended to adopt the GATT provisions for determining a lump sum.

In order to completely answer your questions, I think we need some more info:

a. Your date of birth.

b. Your DB plan benefit earned as of whatever date you severed employment, probably expressed as a monthly benefit commencing as of Normal Retirement Date.

c. The plan's defintion of "Normal form of payment", probably "life annuity" but not necessarily.

d. The plan's definition of Normal Retirement Date,likely age 65, but not necessarily.

e. The date the plan adopted the GATT provisions.

f. Confirm whether Item (1) above is correct.

[Guest Doug Goelz]

The Federal Reserve Board does provide this information in the statistical releases it posts to its web site. The site is located at http://www.bog.frb.fed.us/releases/

Use the G.13 Release. It contains a monthly summary of various rates. One of which is the monthly average of the daily 30-year Treasury constant maturities yields. The G.13 Release is generally updated on the first Tuesday of each month.

[Guest mary walsh]

1.Yes, the plan year is calendar year.

2. Yes, plan uses the PBGC rates to determine lump sum value.

3. Yes.

4. NO the plan has not been amended to GATT.

a. DOB 9/15/53

b. 1783.25 monthly benefit

c. Qualify Joint and Survivor Annuity

d. Yes, 65 normal retirement date

e. The plan did not adopt GATT provisions.

The lump sum benefit calculation of 5/15/2000 was determined using a PBGC rate of 4.00/4.00. The 9/01/2000 calculation used a 5.00/4.25 rate. Because the plan year is the calendar year shouldn't the rate be the same?

Thank you

[Guest Doug Goelz]

In order to determine the actuarial present value using the PBGC basis, it would be necessary to know the mortality table specified in the plan's document. Based on the information given, it appears the 1983 Group Annuity Mortality table for Males is being used. Frequently a sex distinct table is used for both males and females to calculate lump sums using the same basis for all participants (to prevent sex discrimination). In addition, it appears the plan's definition of actuarial equivalence does not require mortality to be taken into account for payments prior to retirement age.

Based on the above and a life annuity normal form of payment (for purposes of computing actuarial equivalent forms of payment), the following calculations come close to the amounts provided to you.

At 5/15/1999:

PBGC immediate rate in effect for Jan '99 = 4.0%

(assumes rate applies for entire year, which is common)

$1/month Annuity Purchase Rate @ Age 65 and 4.0% = 138.777

Discount period to retirement date = 19.34 years

Lump Sum = 1,783.25 x 138.777 / (1.04)^19.34 = 115,906

(compared to the $115,378 you were given)

At 5/15/2000:

Applying the same assumptions as above results in a lump sum value of $120,542. This is close to the $120,916 provided to you. However, it appears the interest rates were not updated to use the rate in effect for Jan 2000 which would apply for the 2000 plan year. The PBGC immediate rate for Jan 2000 was 5.0%, with discount rates of 4.25% for the first 7 years and 4.00% for the remaining years in the discount period. Using the above mortality and a 5.0% interest rate, results in an annuity purchase rate of 128.218 at age 65 (based on providing $1/month)

At 9/1/2000 and 11/1/2000:

If my assumptions above were not merely coincidental, it appears that the calculations at these dates may have been incorrectly using a 4.25% rate for the entire discount period (time from determination date to your retirement age). Consider the following:

at 9/1/2000,

1,783.25 x 128.218 / (1.0425)^18.08 = $107,732

(not quite as close as above, but still close to $108,452)

However, the calculation should be:

1,783.25 x 128.218 / (1.0425)^7 / (1.04)^11.08 = $110,637

at 11/1/2000,

1,783.25 x 128.218 / (1.0425)^17.91 = $108,497

(not quite as close as above, but still close to $109,286)

However, the calculation should be:

1,783.25 x 128.218 / (1.0425)^7 / (1.04)^10.91 = $111,377

You should check with your plan administrator to see if the above is correct. If so, it would explain why the value given you at 5/15/2000 was so high compared to those later in the year. If the plan applies the PBGC rate in effect at the beginning of the year for distributions occurring during the entire year, there is no way your value could decrease in a given plan year when you are not at retirement age.

[david rigby]

The Federal Reserve Link mentioned above has been updated.

http://www.federalreserve.gov/releases/G13/