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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 Pension Benefit Guaranty Corporation (PBGC) is updating the mortality assumptions used in valuing benefits for terminating plans. The PBGC's regulations provide rules for valuing benefits for a single-employer plan in the event of an involuntary termination under ERISA §4062. The PBGC uses these rules to determine the extent to which participants' benefits are funded under the ERISA §4044 allocation rules, whether a plan is sufficient for guaranteed benefits, and how much an employer owes the PBGC as a result of a plan termination. In calculating valuations under these regulations, mortality assumptions are used to measure the probability that a given participant will survive to his expected benefit payment date.
When the current PBGC regulations on mortality assumptions for valuation of benefits for non-disabled participants were adopted, they were based upon the 1983 Group Annuity Mortality (GAM-83) tables. The GAM-83 tables were then widely in use by private insurers to set group annuity prices. Since the 1993 adoption date of the current regulations, private insurers have largely moved to the use of 1994 Group Annuity Mortality (GAM94) tables (also known as the 1994 Uninsured Pensioner Mortality (UP–94) tables) for annuity pricing, according to a survey conducted by the American Council of Life Insurance (ACLI) on behalf of the PBGC.
In furtherance of its stated intention to keep its individual valuation assumptions consistent with private insurers' assumptions, the PBGC is updating its regulations to adopt the GAM-94 Basic Table as the basis for the healthy-life mortality assumptions to be used for PBGC valuations of plan benefits. The new rules apply to any plan with a termination date on or after January 1, 2006. The new regulation also adds two other sets of mortality assumptions for disabled participants, for plans that require, and plans that do not require, eligibility for Social Security Disability benefits.
The purpose of adopting this change is to reflect expected improvements in mortality, as required by the regulations. According to the PBGC, any effect that a change in mortality assumptions will have on valuations generally will be offset by the effect of the corresponding change in the interest factors. Therefore, according to the PBGC, the choice of mortality assumptions should have no significant effect on benefit valuations.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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