QUESTION: How do I get the liability for a plan termination computed in accordance with the IRS and PBGC regulations (and other statutory / regulatory requirements) for a plan subject to the plan termination provisions of the Pension Protection Act of 2006 (PPA)?

ANSWER: First consult the relevant published guidance – including PPA law provisions, ERISA section 4010 and PBGC regulations – to be sure the following suggested methodology is appropriate for valuing the plan termination liability in your plan’s particular situation.

Note that the steps below assume a single decrement environment.

1. Run a Valuation with Individual Results, to write the current accrued benefit to a ProVal database. If the data is as of the beginning of the calculation year, also write the annual accrual for actives to a ProVal database.

2. Determine XRA for active and terminated vested participants using the U.S. PBGC Expected Retirement Age (XRA) tool. This tool will save a numeric XRA value (XRA Result field) to your database.

3. Set up a set of Census Specifications that sets the status of terminated vested participants as “Vested valued through active”.

4. Set up a Plan Definition containing a retirement Benefit Definition with the following parameter settings:

1. The Normal form of payment as deferred to a numeric field value. Refer to the database field that is the XRA Result field. This field will be referred to as the “XRA database field” throughout the remainder of this article.

2. The Benefit formula as the benefit (amount) component multiplied by the Early Retirement Factors table, where the benefit is defined as follows:

1. If you are using data as of the calculation date, the benefit is a database field type of Benefit Formula Component that references the field selected under the XRA tool as the Annual Accrued Benefit.

2. If you are using beginning of year data and therefore rolling forward your liability results to the required measurement date, the benefit is a career average formula component with the following parameter settings: (1) the Basis Formula is a database field type of Accrual Basis Component that references the field selected under the XRA tool as the annual accrual (that is, the field selected for the plus Accrual parameter); (2) the Accrual Rates will vary by years of service and the accrual rate will be 1 for all years of service, with new rates as of (Effective date is the valuation date plus one year) equal to 0; (3) the Accrued Benefit is the field selected under the XRA tool as the Annual Accrued Benefit.

This will calculate a liability based on the accrued benefit at the beginning of the year and a normal cost based on the annual accrual during the year, which may be used for the roll-forward.

5.  Set up Valuation Assumptions with:

1. Applicable law type set to “Pre-PPA”.

2. Under the Liability Methods topic, select the Pure Unit Credit liability.

3. Retirement rates that are 100% at a specified retirement age and reference the XRA database field.

4. Calendar-year dependent interest rates as specified in Section 4010 (translating “duration from the valuation date” into calendar years).

5. Mortality set to the appropriate table      

Alternatively, you could set the law type to “PPA” and, under the Actuarial Liability topic, select the Pure Unit Credit liability, check the box to use an alternative interest rate and click the Interest button, which will allow you to enter the desired interest rates.