PBGC Seeks to Amend Allocation of Assets Regulation

The Pension Benefit Guaranty Corporation (PBGC) has proposed amendments to its regulation on allocation of assets in single-employer plans.

The PBGC seeks to make the changes in order to update the actuarial assumptions—the interest, mortality, and expense assumptions—used to determine:

• the present value of a single-employer plan’s benefits under subpart B of the PBGC’s Regulation on Allocation of Assets in Single-Employer Plans (29 CFR part 4044) when it terminates in a distress or involuntary termination; and 
• the present value of multiemployer plan benefits in certain withdrawal liability calculations.

Why?

The PBGC seeks to improve upon current methodology for several reasons. 

The PBGC says that the structure of its interest assumption under the benefits valuation regulation has become increasingly obsolete, and that a yield curve approach would better reflect the term structure of the fixed income investments that underlie the price of group annuities and better represent the present value of future benefits. 

The PBGC also seeks to improve the methodology by eliminating the lag between when data used to set its interest assumption are observed and the interest rate environment on the valuation date. This, it says, is desirable because the interest rate environment on the valuation date also affects the value of the assets that pension funds invest in, including fixed income investments, equity, and real estate.

And the PBGC further seeks to increase transparency regarding its process for setting the 4044 interest assumption. 

More Detail

This proposed rule would modify actuarial assumptions for valuing benefits under subpart B to the PBGC’s regulation on Allocation of Assets in Single-Employer Plans to:

• modernize the interest assumption structure by adopting a yield curve approach; 
• enable the use of market interest rates as of the date of liability measurement (i.e., the valuation date) as the basis for the interest assumption; 
• increase transparency by using a procedure based on publicly available yield curves as of the valuation date; and 
• adopt a more recent mortality table along with a generational mortality improvement projection; and
• simplify the expense assumption.

Under the proposal, the interest assumption under Section 4044 of ERISA would be based on a blend of two publicly available yield curves (the blended market yield curve) and would be adjusted to the extent necessary so that the resulting liabilities align with group annuity prices. The adjusted blended market yield curve would consist of interest rates at maturity points from 0.5 to 30 years in half-year increments. The interest rate for the maturity point at year 30. would be used to discount benefits expected to be paid more than 30 years after the valuation date.

To accommodate other valuation dates, the proposal includes a “lookback” rule for valuation dates that are not as of the end of the month. Under the lookback rule, if the valuation date is not on the last day of a month, the applicable blended market yield curve as of the last day of the prior month would be used.

Given the proposed methodology, practitioners would be able to determine the 4044 yield curve as of the end of any month as soon as the Treasury Department publishes the two yield curves underlying the development of the blended market yield curve. In addition, to reduce administrative burden on practitioners, the PBGC would post the 4044 yield curve on its website each month shortly after its underlying data become available.

Additional Effects

The changes to these assumptions also would affect the PBGC’s regulations on:

• Notice, Collection, and Redetermination of Withdrawal Liability (29 CFR part 4219); 
• Special Financial Assistance by PBGC (29 CFR part 4262); 
• Duties of Plan Sponsor Following Mass Withdrawal (29 CFR part 4281); 
• Annual Financial and Actuarial Information Reporting (29 CFR part 4010); and 
• Missing Participants (29 CFR part 4050); and other regulations.

Applicability 

The amendments would apply to calculations for which the valuation date is on or after the effective date of the final rule.

Comments Invited

The PBGC will accept comments for 60 days after the proposed amendments are published  in the Federal Register of Aug. 18, 2023. Comments may be submitted by any of the following methods: 

• via the federal eRulemaking Portal: https://www.regulations.gov. 
• via email to: [email protected]. Refer to RIN 1212–AA55 in the subject line. 
• via mail or hand delivery to: Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 445 12th Street SW, Washington, DC 20024-2101.

Finding out More

The proposed rule appears in the Federal Register of Aug. 18, 2023. 

A white paper providing additional information on the methodology being proposed to determine the interest assumption is available here.