Target Liabilities
If your selection for the applicable law parameter is “Pre-PPA and PPA”, that is, you are running single-employer plan forecasts that transition into the funding rules of the Pension Protection Act of 2006 (PPA) at a future valuation date, then the funding interest basis and mortality rates to apply after transition, to compute PPA target liabilities, are specified by the Target Liabilities topic. For guidance, see the applicable Internal Revenue Code (IRC) sections, including Sections 404(a), 412 and 430, any relevant Internal Revenue Service (IRS) regulations, as well as any relevant IRS Revenue Procedures, Revenue Rulings, Notices and other pronouncements.
Note that this is not the place to define the interest rate or mortality bases for computing PBGC variable premium liability or current liability, which have their own associated interest rates and mortality basis (specified elsewhere in Valuation Assumptions). The interest rates and mortality basis specified for target liabilities may also be used for present value of future benefits and/or actuarial liability under a traditional liability method. Alternatively, under the Actuarial Liability topic, you may specify different interest rate and mortality bases for present value of future benefits and/or actuarial liability under selected liability methods.
The specifications of the Target Liabilities topic are applied for valuation dates on or after the plan’s PPA effective date, as indicated by your setting for the effective date in the Asset & Funding Policy used for your forecast. The interest rate basis prior to the plan’s PPA effective date is specified under the Interest Rates topic (see the discussion of interest rates under a law selection other than “PPA”) and the mortality basis prior to the plan’s PPA effective date is specified under the Decrements topic (see the discussion of mortality rates under a law selection other than “PPA”).
ProVal will compute the following target liabilities, as defined under PPA:
Not-at-risk liability for the minimum required contribution
Not-at-risk liability for the maximum tax deductible contribution
At-risk liability for the minimum required contribution
At-risk liability for the maximum tax deductible contribution
At-risk liabilities are computed by replacing the assumed retirement rates (including post-termination retirement rates) for decrements occurring during the ten years following the current year (i.e., the year beginning on the valuation date) with rates of 1. This replacement applies only to records whose ProVal status is “Active” or “Vested valued through active”, not to records with a “Vested” ProVal status. Therefore the “Vested valued through active” status must be used for terminated vested participants if you wish to replace the retirement and termination assumptions that apply to them for at-risk purposes.
For at-risk purposes, no adjustment is made to the benefit amounts or payment forms valued; it is assumed that your parameter coding already reflects the plan benefits and payment forms that produce the largest present value of benefits in accordance with IRC Section 430. Note that a forecast allows you to override the baseline Core Projection(s) for at-risk purposes; the specified override Core Projection(s) presumably would reflect the desired benefit and payment form coding for at-risk calculations.
Interest Rates
Target liabilities are computed using legislated Interest rates that may be either Segment rates, based on the corporate bond yield curve and as defined under PPA, or spot rates, i.e., interest rates under the corporate bond yield curve regardless of when the bond matures, aka the Spot rate curve. Under the “Pre-PPA and PPA” law selection, ProVal does not support use of different segment rates for minimum funding and maximum tax deductible contribution purposes within a single Valuation run, so only one set of segment rates may be entered. The Look up button is accessible only if the spot rate curve has been selected, but you may look up published segment rates under the Interest Rates topic of a “PPA” law selection set of Valuation Assumptions. The Interest Rates topic also provides details about coding the parameters for segment rates and spot rates.
Mortality Rates
Target liabilities have their own set of Mortality Rates, which may differ from those specified under the Decrements topic for the period prior to transition to PPA.
For details about coding the parameters, see the discussion under the Decrements topic of mortality rates under a “PPA” law selection.