Valuation of Plan Benefits in Single-Employer Plans; Valuation of Plan Benefits and Plan Assets Following Mass Withdrawal; Amendments Adopting Additional PBGC Rates

PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 2619 and 2676

Valuation of Plan Benefits in Single-Employer Plans; Valuation of

Plan Benefits and Plan Assets Following Mass Withdrawal; Amendments

Adopting Additional PBGC Rates

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: This final rule amends the Pension Benefit Guaranty

Corporation's (``PBGC's'') regulations on Valuation of Plan Benefits in

Single-Employer Plans and Valuation of Plan Benefits and Plan Assets

Following Mass Withdrawal. The former regulation contains the interest

assumptions that the PBGC uses to value benefits under terminating

single-employer plans. The latter regulation contains the interest

assumptions of valuations of multiemployer plans that have undergone

mass withdrawal. The amendments set out in this final rule adopt the

interest assumptions applicable to single-employer plans with

termination dates in April 1994, and to multiemployer plans with

valuation dates in April 1994. The effect of these amendments is to

advise the public of the adoption of these assumptions.

EFFECTIVE DATE: April 1, 1994.

FOR FURTHER INFORMATION CONTACT:

Harold J. Ashner, Assistant General Counsel, Office of the General

Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, NW.,

Washington, DC 20005, (202) 326-4024 (202-326-4179 for TTY and TDD).

(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: This rule adopts the April 1994 interest

assumptions to be used under the Pension Benefit Guaranty Corporation's

(``PBGC's'') regulations on Valuation of Plan Benefits in Single-

Employer Plans (29 CFR part 2619, the `'single-employer regulation'')

and Valuation of Plan Benefits and Plan Assets Following Mass

Withdrawal (29 CFR part 2676, the ``multiemployer regulation'').

Part 2619 sets forth the methods for valuing plan benefits of

terminating single-employer plans covered under title IV of the

Employee Retirement Income Security Act of 1974, as amended

(``ERISA''). Under ERISA section 4041(c), all single-employer plans

wishing to terminate in a distress termination must value guaranteed

benefits and ``benefit liabilities'', i.e., all benefits provided under

the plan as of the plan termination date, using the formulas set forth

in part 2619, subpart C. (Plans terminating in a standard termination

may, for purposes of the Standard Termination notice filed with PBGC,

use these formulas to value benefit liabilities, although this is not

required). In addition, when the PBGC terminates an underfunded plan

involuntarily pursuant to ERISA section 4042(a), it uses the subpart C

formulas to determine the amount of the plan's underfunding. Part 2676

prescribes rules for valuing benefits and certain assets of

multiemployer plans under sections 4219(c)(1)(D) and 4281(b) of ERISA.

Appendix B to part 2619 sets forth the interest rates and factors

under the single-employer regulation. Appendix B to part 2676 sets

forth the interest rates and factors under the multiemployer

regulation. Because these rates and factors are intended to reflect

current conditions in the financial and annuity markets, it is

necessary to update the rates and factors periodically.

The PBGC issues two sets of interest rates and factors, one set to

be used for the valuation of benefits to be paid as annuities and one

set for the valuation of benefits to be paid as lump sums. The same

assumptions apply to terminating single-employer plans and to

multiemployer plans that have undergone a mass withdrawal. This

amendment adds to appendix B to parts 2619 and 2676 sets of interest

rates and factors for valuing benefits in single-employer plans that

have termination dates during April 1994 and multiemployer plans that

have undergone mass withdrawal and have valuation dates during April

1994.

For annuity benefits, the interest rates will be 6.20% for the

first 25 years following the valuation date and 5.25% thereafter. For

benefits to be paid as lump sums, the interest assumptions to be used

by the PBGC will be 4.75% for the period during which benefits are in

pay status and 4.0% during the period preceding the benefit's placement

in pay status. (ERISA section 205(g) and Internal Revenue Code section

417(e) provide that provide sector plans valuing lump sums under

$25,000 must use interest assumptions at least as generous as those

used by the PBGC for valuing lump sums (and for lump sums exceeding

$25,000 are restricted to 120% of the PBGC interest assumptions).) The

above annuity interest assumptions represent an increase (from those in

effect for March 1994) of .40 percent for the first 25 year following

the valuation date are otherwise unchanged; the lump sum interest

assumptions represent an increase (from those in effect for March 1994)

of .25 percent of the period during which benefits are in pay status

and are otherwise unchanged.

Generally, the interest rates and factors under these regulations

are in effect for at least one month. However, the PBGC publishes its

interest assumptions each month regardless of whether they represent a

change from the previous month's assumptions. The assumptions normally

will be published in the Federal Register by the 15th of the preceding

month or as close to that date as circumstances permit.

The PBGC has determined that notice and public comment on these

amendments are impracticable and contrary to the public interest. This

finding is based on the need to determine and issue new interest rates

and factors promptly so that the rates and factors can reflect, as

accurately as possible, current market conditions.

Because of the need to provide immediate guidance for the valuation

of benefits in single-employer plans whose termination dates fall

during April 1994, and in multiemployer plans that have undergone mass

withdrawal and have valuation dates during April 1994, the PBGC finds

that good cause exists for making the rates and factors set forth in

this amendment effective less than 30 days after publication.

The PBGC has determined that this action is not a ``significant

regulatory action'' under the criteria set forth in Executive Order

12866, because it will not have an annual effect on the economy of $100

million or more or adversely affect in a material way the economy, a

sector of the economy, productivity, competition, jobs, the

environment, public health or safety, or State, local, or tribal

governments or communities; create a serious inconsistency or otherwise

interfere with an action taken or planned by another agency; materially

alter the budgetary impact of entitlements, grants, user fees, or loan

programs or the rights and obligations of recipients thereof; or raise

novel legal or policy issues arising out of legal mandates, the

President's priorities, or the principles set forth in Executive Order

12866.

Because no general notice of proposed rulemaking is required for

this amendment, the Regulatory Flexibility Act of 1980 does not apply.

See 5 U.S.C. 601(2).

List of Subjects

29 CFR Part 2619

Employee benefit plans, Pension insurance, and Pensions.

29 CFR Part 2676

Employee benefit plans and Pensions.

In consideration of the foregoing, parts 2619 and 2676 of chapter

XXVI, title 29, Code of Federal Regulations, are hereby amended as

follows:

PART 2619--[AMENDED]

1. The authority citation for part 2619 continues to read as

follows:

Authority: 29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.

2. In appendix B, Rate Set 6 is added to Table I, and a new entry

is added to Table II, as set forth below. The introductory text of

Table I is amended by revising both references to ``2619.43'' to read

``2619.49'', and the introductory text of both tables is republished

for the convenience of the reader.

Appendix B to Part 2619--Interest Rates Used to Value Lump Sums and

Annuities

Lump Sum Valuations

In determining the value of interest factors of the form

v0:n (as defined in Sec. 2619.49(b)(1)) for purposes of

applying the formulas set forth in Sec. 2619.49 (b) through (i) and

in determining the value of any interest factor used in valuing

benefits under this subpart to be paid as lump sums (including the

return of accumulated employee contributions upon death), the PBGC

shall employ the values of i1 set out in Table I hereof as

follows:

(1) For benefits for which the participant or beneficiary is

entitled to be in pay status on the valuation date, the immediate

annuity rate shall apply.

(2) For benefits for which the deferral period is y years (y is

an integer and 0n1), interest rate i1 shall

apply from the valuation date for a period of y years; thereafter

the immediate annuity rate shall apply.

(3) For benefits for which the deferral period is y years (y is

an integer and n1n1+n2), interest rate

i2 shall apply from the valuation date for a period of

y-n1 years, interest rate i1 shall apply for the following

n1 years; thereafter the immediate annuity rate shall apply.

(4) For benefits for which the deferral period is y years (y is

an integer and y>n1+n2), interest rate i3 shall apply

from the valuation date for a period of y-n1-n2 years,

interest rate i2 shall apply for the following n2 years,

interest rate i1 shall apply for the following n1 years;

thereafter the immediate annuity rate shall apply.

Table I

[Lump Sum Valuations]

--------------------------------------------------------------------------------------------------------------------------------------------------------

For plans with a Immediate Deferred annuities (percent)

valuation date annuity ----------------------------------------------------------------

Rate set -------------------------- rate

On or after Before (percent) i1 i2 i3 n1 n2

--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * * * *

6............................................... 4-1-94 5-1-94 4.75 4.00 4.00 4.00 7 8

--------------------------------------------------------------------------------------------------------------------------------------------------------

Annuity Valuations

In determining the value of interest factors of the form

v0:n (as defined in Sec. 2619.49(b)(1)) for purposes of

applying the formulas set forth in Sec. 2619.49 (b) through (i) and

in determining the value of any interest factor used in valuing

annuity benefits under this subpart, the plan administrator shall

use the values of it prescribed in Table II hereof.

The following table tabulates, for each calendar month of

valuation ending after the effective date of this part, the interest

rates (denoted by i1, i2, * * *, and referred to generally

as it) assumed to be in effect between specified anniversaries

of a valuation date that occurs within that calendar month; those

anniversaries are specified in the columns adjacent to the rates.

The last listed rate is assumed to be in effect after the last

listed anniversary date.

Table II

[Annuity Valuations]

----------------------------------------------------------------------------------------------------------------

The values of it are:

For valuation dates occurring in -----------------------------------------------------------------------------

the month-- it for t= it for t= it for t=

----------------------------------------------------------------------------------------------------------------

* * * * * * *

April 1994........................ .0620 1-25 .0525 >25 N/A N/A

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PART 2676--[AMENDED]

3. The authority citation for part 2676 continues to read as

follows:

Authority: 29 U.S.C. 1302(b)(3), 1399(c)(1)(D), 1441(b)(1).

4. In appendix B, Rate Set 6 is added to Table I, and a new entry

is added to Table II, as set forth below. The introductory text of both

tables is republished for the convenience of the reader and remains

unchanged.

Appendix B to Part 2676--Interest Rates Used to Value Lump Sums and

Annuities

Lump Sum Valuations

In determining the value of interest factors of the form

V0:n (as defined in Sec. 2676.13(b)(1)) for purposes of

applying the formulas set forth in Sec. 2676.13 (b) through (i) and

in determining the value of any interest factor used in valuing

benefits under this subpart to be paid as lump sums, the PBGC shall

use the values of it prescribed in Table I hereof. The interest

rates set forth in Table I shall be used by the PBGC to calculate

benefits payable as lump sum benefits as follows:

(1) For benefits for which the participant or beneficiary is

entitled to be in pay status on the valuation date, the immediate

annuity rate shall apply.

(2) For benefits for which the deferral period is y years (y is

an integer and 0n1), interest rate i1 shall

apply from the valuation date for a period of y years; thereafter

the immediate annuity rate shall apply.

(3) For benefits for which the deferral period is y years (y is

an integer and n1n1+n2), interest rate

i2 shall apply from the valuation date for a period of

y-n1 years, interest rate i1 shall apply for the following

n1 years; thereafter the immediate annuity rate shall apply.

(4) For benefits for which the deferral period is y years (y is

an integer and y>n1+n2), interest rate i3 shall apply

from the valuation date for a period of y-n1-n2 years,

interest rate i2 shall apply for the following n2 years,

interest rate i1 shall apply for the following n1 years;

thereafter the immediate annuity rate shall apply.

Table I

[Lump Sum Valuations]

--------------------------------------------------------------------------------------------------------------------------------------------------------

For plans with a Deferred annuities (percent)

valuation date Immediate ----------------------------------------------------------------

Rate set -------------------------- annuity

On or after Before rate(percent) i1 i2 i3 n1 n2

--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * * * *

6............................................. 4-1-94 5-1-94 4.75 4.00 4.00 4.00 7 8

--------------------------------------------------------------------------------------------------------------------------------------------------------

Annuity Valuations

In determining the value of interest factors of the form

v0:n (as defined in Sec. 2676.13(b)(1)) for purposes of

applying the formulas set forth in Sec. 2676.13(b) through (i) and

in determining the value of any interest factor used in valuing

annuity benefits under this subpart, the plan administrator shall

use the values of it prescribed in the table below.

The following table tabulates, for each calendar month of

valuation ending after the effective date of this part, the interest

rates (denoted by i1, i2, * * *, and referred to generally

as It) assumed to be in effect between specified anniversaries

of a valuation date that occurs within that calendar month; those

anniversaries are specified in the columns adjacent to the rates.

The last listed rate is assumed to be in effect after the last

listed anniversary date.

Table II

[Annuity Valuations]

----------------------------------------------------------------------------------------------------------------

The values of it are:

For valuation dates occurring in -----------------------------------------------------------------------------

the month-- it for t= it for t= it for t=

----------------------------------------------------------------------------------------------------------------

* * * * * * *

April 1994........................ .0620 1-25 .0525 >25 N/A N/A

----------------------------------------------------------------------------------------------------------------

Issued in Washington, DC, on this 10th day of March 1994.

Martin Slate,

Executive Director, Pension Benefit Guaranty Corporation.

[FR Doc. 94-5968 Filed 3-14-94; 8:45 am]

BILLING CODE 7708-01-M