Allocation of Assets in Single-Employer Plans; Interest Rate for Valuing Benefits

SUMMARY: This final rule amends the Pension Benefit Guaranty

Corporation's regulation on Allocation of Assets in Single-Employer

Plans. The regulation prescribes interest assumptions for valuing

benefits under terminating single-employer plans. This rule adopts

interest assumptions for plans with valuation dates in August 1996 and

advises the public of the new assumptions. These interest assumptions

are also used under the PBGC's regulation on Duties of Plan Sponsor

Following Mass Withdrawal.

EFFECTIVE DATE: August 1, 1996.

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).

SUPPLEMENTARY INFORMATION: This rule adopts the August 1996 interest

assumptions to be used in benefit valuations for terminating single-

employer plans. Before July 1996, the interest assumptions used for

such benefit valuations were contained in PBGC regulations codified at

29 CFR part 2619. In a final rule effective July 1, 1996 (61 FR 34001),

the PBGC reorganized and renumbered its regulations. The single-

employer benefit valuation provisions are now codified in the PBGC's

regulation on Allocation of Assets in Single-Employer Plans at 29 CFR

part 4044, and this rule amends that regulation. As discussed in a

notice published elsewhere in today's Federal Register, these interest

assumptions are also used in valuations of multiemployer plans

following mass withdrawal.

Part 4044 prescribes actuarial assumptions for valuing plan

benefits of terminating single-employer plans covered by title IV of

the Employee Retirement Income Security Act of 1974. Under ERISA

section 4041(c), a single-employer plan administrator wishing to

terminate the plan 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) in accordance with part 4044.

(Benefit liabilities may also be valued in accordance with part 4044

for purposes of the Standard Termination Notice filed with the PBGC by

a plan terminating in a standard termination, although this is not

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

involuntarily pursuant to ERISA section 4042(a), it values benefits in

accordance with part 4044 to determine the amount of the plan's

underfunding.

Among the actuarial assumptions prescribed in part 4044 are

interest rates and factors, which are set forth in appendix B to part

4044. Because these interest 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.

Two sets of interest rates and factors are prescribed, one set for

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

valuation of benefits to be paid as lump sums. This amendment adds to

appendix B to part 4044 the two sets of interest rates and factors for

valuing benefits in plans with valuation dates during August 1996.

For annuity benefits, the interest rates will be 6.30 percent for

the first 20 years following the valuation date and 4.75 percent

thereafter. For benefits to be paid as lump sums, the interest

assumptions to be used by the PBGC will be 5.25 percent for the period

during which benefits are in pay status, 4.50 percent during the seven-

year period directly preceding the benefit's placement in pay status,

and 4.00 percent during any other years preceding the benefit's

placement in pay status. The annuity interest assumptions represent an

increase (from those in effect for July 1996) of 0.10 percent for the

first 20 years following the valuation date and are otherwise

unchanged. The lump sum interest assumptions represent an increase

(from those in effect for July 1996) of 0.25 percent for the period

during which benefits are in pay status and the seven years directly

preceding that period and are otherwise unchanged.

Generally, the interest rates and factors under part 4044 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 are normally

published in the Federal Register on or about the 15th of the preceding

month.

The PBGC has determined that notice and public comment on this

amendment 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 plans with valuation dates during August 1996, 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 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 in 29 CFR Part 4044

Pension insurance, Pensions.

In consideration of the foregoing, part 4044 of chapter XL, title

29, Code of Federal Regulations, is hereby amended as follows:

PART 4044--[AMENDED]

1. The authority citation for part 4044 continues to read as

follows:

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

Appendix B to Part 4044--[Amended]

2. In appendix B, a new entry is added to Table I, and Rate Set 34

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

table is republished for the convenience of the reader and remains

unchanged.

Appendix B to Part 4044--Interest Rates Used to Value Annuities and

Lump Sums

[[Page 36969]]

Table I.--Annuity Valuations

[This table sets forth, for each indicated calendar month, 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]

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The values of it are:

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

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

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* * * * * *

August 1996....................... .0630 1-20 .0475 >20 N/A N/A

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Table II.--Lump Sum Valuations

[In using this table: (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 (where y is an integer and 0 n1), interest rate i1

shall apply from the valuation date for a period of y years, and thereafter the immediate annuity rate shall apply; (3) For benefits for which the

deferral period is y years (where y is an integer and n1 n1 + 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, and thereafter the immediate annuity rate shall apply; (4) For benefits for which

the deferral period is y years (where 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, and thereafter the immediate

annuity rate shall apply]

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For plans with a valuation date Immediate Deferred annuities (percent)

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

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

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* * * * * * *

34.............. 08-1-96 09-1-96 5.25 4.50 4.00 4.00 7 8

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Issued in Washington, DC, on this 5th day of July 1996.

Martin Slate,

Executive Director, Pension Benefit Guaranty Corporation.

[FR Doc. 96-17792 Filed 7-12-96; 8:45 am]

BILLING CODE 7708-01-P