The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule that updates certain interest assumptions for plans with valuation dates in the first quarter of 2020. The rule is effective Jan. 1, 2020.
The rule amends interest assumptions used for valuing benefits and paying certain benefits under terminating single-employer plans covered by the pension insurance system administered by PBGC. Specifically, they amend:
- the PBGC Regulations on Benefits Payable in Terminated Single-Employer Plans and Allocation of Assets in Single-Employer Plans to prescribe certain interest assumptions under the benefit payments regulation for plans with valuation dates in January 2020
- interest assumptions under the asset allocation regulation for plans with valuation dates in the first quarter of 2020.
Lump Sum Interest Assumption
This final rule updates appendices B and C of the benefit payments regulation to provide
the rates for January 2020 measurement dates.
The January 2020 lump sum interest assumptions will be 0.25% for the period during which a benefit is (or is assumed to be) in pay status and 4% during any years preceding the benefit’s placement in pay status. These assumptions represent no change in the immediate rate and are otherwise unchanged.
Valuation/Asset Allocation Interest Assumptions
The PBGC uses the interest assumptions in appendix B to part 4044 (Interest Rates Used to Value Benefits) to value benefits for allocation purposes under section 4044 of ERISA, and
some private-sector pension plans use them to determine benefit liabilities reportable under Section 4044 of ERISA and for other purposes.
The first quarter 2020 interest assumptions will be 2.12% for the first 25 years following the valuation date and 2.26% thereafter. These interest assumptions represent no change in the select period (the period during which the select rate (the initial rate) applies), a decrease of 0.41% in the select rate, and a decrease of 0.27% in the ultimate rate (the final rate).
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