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PBGC Premium

The Pension Benefit Guaranty Corporation (PBGC) Premium dialog box specifies headcount information and funding assumptions for calculating the vested benefit liability for purposes of determining the variable rate portion of the single-employer plan PBGC premium. For guidance, see the applicable PBGC Regulations and the instructions for completing PBGC premium payment filing forms that are contained in the Premium Payment Package booklet published by the PBGC.

If you check the Calculate PBGC Variable Premium Liabilities box (the Process PBGC Variable Premium Liability box under the “pre-PPA” law option), ProVal will compute:

according to the selection of applicable law and reflecting the appropriate interest rate and mortality bases. Only vested benefits are reflected.

Although the variable rate premium liability is calculated by the Valuation (or, in a forecast, Core Projection), the PBGC variable rate premium based on that liability is calculated during subsequent execution of the Valuation Set (or forecast) that references the Valuation (or Core Projection). To review ProVal’s variable rate premium and per-participant premium calculations, run the “Development of PBGC Premium” Valuation Set Exhibit or Deterministic Forecast Exhibit. If a Valuation Set will be referenced under the Government Forms Extract command to export values produced by this Valuation for completion of a PBGC premium payment filing form, see also the discussion of special considerations at the end of this article.

In a forecast, the interest rate assumption for the variable rate premium liability calculation for the valuation as of the baseline Valuation Date is 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 assumption is either specified under the Future Valuation Interest Rates topic of the Deterministic Assumptions command or affected by a parameter setting (regarding law choice) of the Legislated Interest Rates topic of the Stochastic Assumptions command (depending on the type of forecast).

The parameters of the PBGC Variable Premium Liability topic are discussed separately for PPA law and the law in effect prior to PPA.

PPA Variable Premium Liability

ProVal determines the variable rate premium liability under PPA, generally for calculations at valuation dates on or after the effective date of the PPA funding rules for your plan, although ProVal will not prevent you from applying PPA at earlier valuation dates. Both at-risk and not-at-risk variable rate premium liabilities are calculated during the valuation, on the target liability mortality basis at the legislated interest rates. The Valuation Set or forecast, subsequently, selects the appropriate type, at-risk or not-at-risk, for computing the variable rate premium.

Under a “PPA” law selection, you may set the PBGC variable premium liability interest rates equal to the “max tax” liability interest rate assumption (entered under the Interest Rates topic) automatically, by checking the Use PPA max tax liability interest rates box. Otherwise, enter values for the Segment rates parameter (discussed in the next paragraph).

The rates for valuing vested benefit payments, i.e., the three PPA Segment Rates (“Pre-PPA and PPA” law selection) or Segment rates (“PPA” law selection), are based, as defined under PPA, on the corporate bond yield curve. The 1st segment parameter is for benefits payable during the five year period beginning on the valuation date, presumed to be the first day of the plan year; the 2nd segment parameter is for benefits payable during the next fifteen years; the 3rd segment parameter is for benefits payable all years thereafter. Each segment rate is used to discount for the entire period from the payment date to the valuation date. Thus interest rates will not vary from the valuation date to the payment date; instead, different (constant) interest rates will be used to discount benefits payable in different years. For example, a benefit payment on 1/1/2015 will be discounted to a 1/1/2008 valuation date using the 2nd segment rate for all seven years between the payment and valuation dates. Note that a benefit payment made on 1/1/2013, exactly five years after the valuation date, will be discounted at the 2nd segment rate; similarly, a benefit payment made on 1/1/2028, exactly twenty years after the valuation date, will be discounted at the 3rd segment rate.

Enter the desired interest rates as numbers between 0 and 0.25 (not as percentages).

To help you complete the input for the text fields, a Look up button is provided that allows you to look up published historical segment rates. Alternatively, you may type the desired rates in the text fields. Note, however, that ProVal will not prevent you from computing variable premium liabilities at rates other than the published segment rates that are appropriate for the premium payment year (plan year for which the premium is paid).

The “Look up PPA PBGC segment rates” dialog box furnishes a list, according to the Year and Month that a set of three segment rates is Applicable for, of the historical segment interest rates used to value vested benefits for variable rate premium purposes. Each row displays the First Segment, Second Segment and Third Segment rates applicable for the month. Click the row corresponding to the calendar month for which you wish to look up the applicable interest rates and then click the Paste button; ProVal will paste the three segment rates applicable for that month into the PBGC Variable Premium Liability dialog box.

As an alternative to specifying an alternative interest rate assumption to be used to calculate the PPA PBGC Variable Rate Premium Liability, checking the box labeled “use target liability interest rates” will automatically use the target liability interest assumption instead.

Pre-PPA Variable Premium Liability

ProVal determines the variable rate premium liability under the law in effect prior to PPA, generally for calculations at valuation dates before the funding rules of PPA take effect for the plan. Because this liability is the vested current liability valued on the RPA ’94 mortality basis at the required interest rate, you must also check the Calculate Vested Liabilities box under the Current Liability topic. (During execution of the valuation, the latter check mark prompts ProVal to compute vested current liability for active and inactive participants at the current liability interest rates. The check in the Process PBGC Variable Premium Liability box alerts ProVal to also compute the RPA ’94 vested current liability based on the specified required interest rate.)

Enter the Pre-PPA Required Interest Rate (“Pre-PPA and PPA” law selection) or Required Interest Rate (“Pre-PPA” law selection) as a number between 0 and 0.25 (not as a percentage). To choose the appropriate rate, click the Look up button. Alternatively, you may type the desired rate in the text field. Note, however, that ProVal will not prevent you from computing variable premium liability at a rate other than the published required interest rate for the premium payment year (plan year for which the premium is paid).

The “Look up PBGC Required Interest Rate” dialog box furnishes a list, according to the Year and Month that the Plan Year Begins in, of historical required interest rates used to value vested benefits for variable rate premium purposes. The plan year referred to in the parameter name is the premium payment year, i.e., the plan year for which premiums are being paid. If you click the row corresponding to the first month of the premium payment year, the rate will then appear below the list as Rate =. Click Paste to paste this rate into the PBGC Variable Premium Liability dialog box as the Required Interest Rate. The basis is corporate bonds for calendar months in 2004 through 2007 and 30 year Treasury bonds (or the Treasury bond substitute utilized for some months) for calendar months in 2003 and earlier years.

Note: The PBGC variable premium Rate (Required Interest Rate) shown for January and February of 2002 is the published revised rate (per the Job Creation and Worker Assistance Act of 2002), or 100% of the annual yield for 30-year Treasury constant maturity securities (bonds) for the calendar month preceding the calendar month in which the premium payment year begins. Prior to this Act, the rate for January and February of 2002 had been published as 4.66% and 4.63%, respectively, or 85% of the bond yield.

If any COLA rate(s) are entered under the Cost-of-Living Adjustments (COLAs) topic, a check mark in the Apply Funding COLA box tells ProVal to apply the COLAs to benefits when computing the variable premium liability.

PBGC Participant Counts

All participants will be included in the PBGC counts unless specifically excluded.  If some participants should be excluded from the PBGC headcount, select an Exclusion field and the codes that identify participants to be excluded from PBGC headcount calculations.

Government Forms Extract

If a Valuation Set will be referenced under the Government Forms Extract command to export values produced by this Valuation for completion of a PBGC premium payment filing form, you must check the box to calculate vested liabilities and (under a “PPA” law selection) the box to process the PBGC variable rate premium liability, even if you have not checked the box, under the PBGC Premium and Administrative Expenses topic of the Asset & Funding Policy, to pay the PBGC premium out of plan assets in a forecast.

Be mindful of the fact that ProVal computes the variable rate premium liability (value of unfunded vested benefits) as of the Valuation Date entered under the Initial Asset Values topic of the Asset & Funding Policy.

Under the law in effect prior to PPA, although ProVal’s vested benefit value may be as of one day later than the premium snapshot date for a premium payment year beginning on the valuation date, in essence ProVal is computing the variable rate premium liability under the General Rule filing method (i.e., ProVal makes no adjustment of vested benefit liability for the passage of a year’s time). Consequently, the variable premium liability value that will be used to determine the variable rate portion of the PBGC premium or that will be exported under the Government Forms Extract command is based on the current year’s plan provisions and actuarial assumptions (i.e., on the final Event, if any, in the Valuation Set). If prior year plan provisions and assumptions differ from those of the current year and you wish to base vested benefit values on the prior year plan provisions and assumptions, run a Valuation reflecting the prior year plan provisions and assumptions and include it in your Valuation Set as an Override for PBGC purposes. Similarly, if you need to adjust the valuation date liability for other differences from the liability on the premium snapshot date, such as would result from significant events, you should reflect that in your choice of parameters. Exactly how your parameters will be set and adjustments made depends, of course, on how you construe the Schedule A instructions. If, for this (pre-PPA) PBGC variable rate premium liability determination, you apply an Alternative Calculation Method instead of the General Rule, then, in the computation of the variable premium liability for the current plan year, you may use the output value for variable premium liability that was computed as of the prior valuation date and adjust it, outside ProVal, for the passage of time and significant events, if any. Alternatively, particularly if there are no significant events, ProVal’s application, under pre-PPA law, of the Alternative Calculation Method to calculate the PBGC variable rate premium under the Valuation Set command may be adequate.