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PBGC Amends its Valuation Regulation

Government Affairs

The Pension Benefit Guaranty Corporation (PBGC) on Dec. 7 published a final rule amending its valuation regulation by substituting a new table for selecting the retirement rate category.

The new table is used to determine the applicable expected retirement age for participants in single-employer plans undergoing distress or involuntary termination with valuation dates falling in 2023. Expected retirement age is one of the assumptions used to determine liabilities under ERISA Section 4044. The final rule is effective Jan. 1, 2023. 

For ERISA Section 4044 calculations, the age at which benefits are assumed to commence depends on two factors:

1. whether the benefit amount is considered low, medium or high (the Retirement Rate Category), and

2. when participants, under the provisions of their plan, can begin receiving reduced and unreduced benefits (the expected retirement age tables).

A copy of the table, and tables for the Retirement Rate Categories for 2008-2023, are available on the PBGC’s ERISA Section 4044 Retirement Assumptions web page, here

Appendix D of ERISA Section 4044

The PBGC has amended appendix D to replace Table I-22 with Table I-23 to provide an updated correlation, appropriate for calendar year 2023, between the amount of a participant's benefit and the probability that the participant will elect early retirement. Table I-23 will be used to value benefits in plans with valuation dates during calendar year 2023.

Table I in appendix D (Selection of Retirement Rate Category) is used to determine whether a participant has a low, medium, or high probability of retiring early. The determination is based on the year a participant would reach “unreduced retirement age” ( i.e., the earlier of the normal retirement age or the age at which an unreduced benefit is first payable) and the participant's monthly benefit at the unreduced retirement age. The table applies only to plans with valuation dates in the current year and is updated annually by PBGC to reflect changes in the cost of living, etc. 

Tables II-A, II-B, and II-C (Expected Retirement Ages for Individuals in the Low, Medium, and High Categories respectively) are used to determine the expected retirement age after the probability of early retirement has been determined using Table I. Those tables establish, by probability category, the expected retirement age based on both the earliest age a participant could retire under the plan and the unreduced retirement age. This expected retirement age is used to compute the value of the early retirement benefit and, thus, the total value of benefits under the plan,