Current Liability ("pre-PPA" and "pre-PPA and PPA" law types) or Current & Vested Liability ("Multiemployer" law type) 

This topic is entitled "Current Liability" except under the “Multiemployer” applicable law type, for which the topic title is "Current & Vested Liability”.

It specifies funding assumptions for RPA ’94 current liability calculations for:

• multiemployer plans and

• single-employer plans under the law in effect prior to PPA, including calculation of liabilities at pre-PPA valuation dates in a forecast.

It also specifies whether to calculate vested liability and, if so, how to determine eligibility for vested benefits.

For guidance, see the applicable Internal Revenue Code (IRC) sections, including Sections 404(a), 412(b), (c), (l) and (m) and Sections 430 and 431, any relevant Internal Revenue Service (IRS) regulations, as well as any applicable IRS Revenue Procedures, Revenue Rulings, Notices and other pronouncements.

The provisions of the Pension Funding Equity Act of 2004 (PFEA) will be applied for new Valuation Assumption sets and for existing assumption sets if you click OK when exiting the Current Liability dialog box. To preserve Valuation Assumptions used with pre-PFEA Valuations (producing OBRA ’87, rather than maximum tax deductible basis, current liability values), be sure to click Cancel after viewing entries in the Current Liability dialog box.

 

Vested Liabilities

Check the Calculate Vested Liabilities box if you want ProVal to calculate vested current liability for active participants; vested current liability for inactive participants is always set equal to current liability. Be sure to check this box if the Valuation is to be the source of vested current liability for a Valuation Set to be used for export under the Government Forms Extract command for completion of IRS Form 5500 Schedules MB/SB. 

For the Eligibility based on current service and ... age parameter, select "current" age if only benefits for which the participant has met the eligibility requirements based on age and service in the valuation year (as of the valuation date, if decrement timing is beginning of year) should be valued for vested liability purposes. That is, an early retirement subsidy, or penalty, is not vested. If "decrement" age is selected, eligibility is based on age in the decrement year, and the participant will grow into eligibility age requirements, provided the eligibility service requirements are met in the valuation year (i.e., an early retirement subsidy or penalty is vested).

The Under MOY decrements, current age and service determined at parameter is relevant only when active decrement timing is set to "middle of year". Select "BOY" to indicate that current age and service should be determined at the valuation date. Select "MOY" to indicate that current age and service should be determined six months after the valuation date, when the decrement occurs. If vested benefit eligibility is determined at decrement age (discussed in the preceding paragraph), this parameter applies only to current service, as current age is not relevant.

For details about calculating vested liabilities and the related parameters, see the Technical Reference article entitled “Vested liability calculation”.

If the applicable law selection is “Multiemployer”, checking the Calculate Vested Liabilities box tells ProVal to compute also vested accrued liability (that is, using the funding liability mortality and interest rate bases). This liability will be used to estimate the multiemployer reorganization index. If this box is not checked, the reorganization index will not be calculated.

 

RPA'94 Current Liability

There are up to three interest rates that you specify for discounting benefits to calculate RPA ’94 current liability values:

1. RPA ’94 Current Liability for the minimum required contribution is calculated using the first Interest Rate parameter shown under this heading.

2. For single-employer plans, for application of the test for exemption from the additional funding requirement of IRC Section 412(l), ProVal also needs to know the Gateway (highest allowable) Interest Rate, which will be used to calculate the gateway liability, i.e., the RPA ’94 current liability at the highest rate within the permissible range of interest rates. If you have chosen the highest allowable rate in the permissible range as your RPA ’94 interest rate, then the values entered for the gateway interest rate and RPA ’94 current liability interest rate parameters should be the same. You must enter a value for this parameter even if the plan’s size renders the funding requirement inapplicable; in such case, if you “look up” the RPA ’94 current liability interest rate value from ProVal’s list of historical regulatory interest rates, the gateway liability interest rate will be filled in also. (See the discussion in a following paragraph.)

3. The current liability for the maximum tax deductible contribution is calculated using the Maximum contribution basis Interest Rate. To use the same interest rate for the minimum required contribution and the maximum tax deductible contribution, enter the value used for the RPA ’94 Current Liability Interest Rate parameter here as well. Typically, a different interest rate is specified only for valuations for plan years beginning in 2004 or 2005 under an election to use a current liability interest rate for maximum tax deductible contribution calculation purposes based on Treasury bond, instead of corporate bond, rates (see, in particular, IRC section 404(a)(1)(F)). For plan years beginning in 2006 or later years, if the rate specified here differs from the rate specified for the RPA ’94 Current Liability Interest Rate parameter, the latter interest rate will be used to calculate 150% (140% for multiemployer plans) of current liability for the “unfunded current liability” component of the maximum tax deductible contribution, if applied under the Bases Supporting Maximum Contribution topic of the Asset & Funding Policy.

Enter each current liability interest rate as a number between 0 and 0.25 (not as a percentage).

To choose interest rates that meet the statutory and regulatory requirements for discounting benefits for current liability calculations for the minimum required and maximum tax deductible contributions and, for single-employer plans, to choose a gateway liability interest rate that is the highest rate in the permissible range of current liability interest rates, click the Look up button to access the “Look up current liability rates” dialog box. (For details about looking up and selecting interest rates for calculation of RPA ’94 current liability values, see the separate discussion of parameters of the “Look up current liability rates” dialog box.) Alternatively, you may type the desired rates in the three text fields. Note, however, that ProVal will not prevent you from computing current liability (for either the minimum required contribution or the maximum tax deductible contribution) at a rate outside the permissible range or computing gateway current liability at a rate that is not the highest rate in the range.

RPA ’94 Current Liability has its own set of Mortality Rates, which may differ from those specified under the Decrements topic for this Valuation Assumptions library entry. Select, from the list of mortality rate reference tables in the current Project (or click the button on the right to create a new one), the mortality rates to use for (healthy) Active and Non-disabled Inactive Members and for Inactive Disabled Members and Actives after disablement.

In a forecast, the interest rate assumptions for current liability calculations for the valuation as of the baseline valuation date are determined by the parameters of this topic of Valuation Assumptions, but for valuations as of forecast valuation dates (i.e., performed for years after the baseline year), the interest rate assumptions are specified under either the Future Valuation Interest Rates topic of the Deterministic Assumptions command or the Legislated Interest Rates topic of the Stochastic Assumptions command (depending on the type of forecast).