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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The PBGC has issued a technical update providing guidance on how recently issued IRS mortality tables (see CCH Pension Plan Guide ¶24,508M) will impact premium calculations and PBGC reporting requirements for defined benefit plans under ERISA §4010 and ERISA §4043.
Because of the issuance of the new mortality tables, the PBGC explains that for the 2007 plan year, the variable rate premium, used to value a plan's benefits, consists of the applicable percentage, which increases from 85% to 100%, of the composite corporate bond rate for the calendar month preceding the calendar month in which the premium payment year begins. Also, the PBGC states that the fair market value, not the actuarial value, must now be used to value plan assets.
The PBGC points out that most plans will not determine their 2007 premiums using the new mortality tables, because the mortality table for measuring unfunded vested benefits (UVBs) on the premium snapshot date is the table that is in effect for the plan year containing the premium snapshot date. Since, for most plans, the premium snapshot date for the 2007 plan year is the last day of the plan year that began in 2006, they would use the old tables, still in effect for plan years beginning in 2006.
For purposes of employer annual reporting to the PBGC by a controlled group, UVBs are calculated on a plan-by-plan basis as of the $50 Million 4010 Gateway Testing Date, which is the last day of the plan year that ends within the information year. For the $50 Million 4010 Gateway Testing Date on or after December 31, 2006, and on or before December 30, 2007, UVBs are calculated using 100% of the composite corporate bond rate and the fair market value of plan assets. For this testing date, the new mortality tables generally do not apply, says the PBGC.
Waivers and extensions from requirements that plan administrators report, post-event, an occurrence of a reportable event, are tied to a plan's variable rate premium status. The PBGC has clarified that to determine if a waiver of post-event reporting applies to a reportable event that occurs in a plan year beginning in 2007, a plan's UVBs are calculated using 100% of the composite corporate bond rate and the fair market value of plan assets, and to determine if a reporting extension applies, UVBs are calculated using 100% of the composite corporate bond rate and the fair market value of plan assets if the plan year preceding the event year begins in 2007. Again, the new mortality tables generally do not apply for purposes of determining whether or not a waiver applies to a post-event reportable event occurring in a plan year beginning in 2007, nor do they apply for purposes of determining if a reporting extension applies to a post-event reportable event, if the plan year preceding the event year begins in 2007.
Up until now, the PBGC has continued the waiver of the requirement to report reportable events if "as of the testing date for the event year, the plan would have no unfunded vested benefits if unfunded vested benefits were determined in accordance with the assumptions and methodology" as found in ERISA Reg. §4010.4(b)(2). The PBGC now states that the waiver is no longer available to controlled groups for any reportable event occurring in a plan year that ends in an information year for which all of the plan years ending in that information year began in 2007 or later, or in other words, for which the new mortality tables apply to all of the controlled group's plans. Similarly, no reporting extension is available based on a plan's lack of unfunded vested benefits, if the plan year preceding the event year ends in an information year for which all of the plan years ending in that information year began in 2007 or later, i.e., for which the new mortality tables apply to all of the controlled group's plans.
The PBGC advises that, for purposes of determining whether a waiver based on "no unfunded vested benefits" applies, the new mortality assumptions prescribed by the PBGC in regulations issued on December 2, 2005 (see CCH Pension Plan Guide ¶24,806T) must be used for testing dates in plan years that end on or after January 1, 2006. The PBGC states that it intends to revise these instructions.
The PBGC also provides that, for purposes of determining if a waiver under Technical Update 97-6 (see CCH Pension Plan Guide ¶19,974J) applies to a reportable event, if the plan year to be tested begins in 2007, 100% of the composite corporate bond rate and the fair market value of plan assets must be used to determine if a variable rate premium is required. In Technical Update 97-6, the PBGC waived the reporting requirement for small employers failing to make quarterly contributions due on or after January 1, 1998, for 1997 or later plan years.
Finally, the PBGC states that, for advance reporting by a company of a reportable event with an effective date in a plan year beginning in 2007, the new mortality tables again generally do not apply. One hundred percent of the composite corporate bond rate and the fair market value of assets will be used to determine if such a company is subject to advance reporting.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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