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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.
Lump-sum valuations for plans terminating before, but with distributions after, the effective date of changes mandated by the Pension Protection Act of 2006 (PPA; P.L. 109-280), must be based on pre-PPA assumptions, according to the Pension Benefit Guaranty Corporation (PBGC).
The PBGC has issued guidance, in the form of a Technical Update, for plans with termination and final distribution dates which straddle the effective date for PPA-required changes in the interest rate and mortality assumptions for lump-sum valuations. The Technical Update indicates that lump-sum valuations for single-employer plans terminating prior to the January 1, 2008 PPA effective date in standard terminations should use pre-PPA interest rate and mortality assumptions, even when the final distribution occurs after that date.
For plan years beginning before January 1, 2008, the applicable interest rate is the annual interest rate on 30-year Treasury securities. Pursuant to changes to Code Sec. 417(e)(3) made by the PPA, for plan years beginning on or after January 1, 2008, the applicable interest rate is based upon three segment rates derived from a corporate bond yield curve. (For plan years beginning in 2008 through 2011, the segment rates are blended with 30-year Treasury yields to develop Transitional Segment Rates.) The applicable mortality table, periodically updated, is the table used for minimum funding purposes under the PPA, based on the actual experience of pension plans and projected trends. The 2008 mortality table applies to distributions with annuity starting dates that occur during stability periods that begin during calendar 2008, on or after the first day of the first plan year beginning in 2008.
The PBGC notes that under ERISA Reg. §4041.8(a) and ERISA Reg. §4041.28(c)(2) , the minimum lump-sum value of a participant’s accrued benefit is calculated using the definitions of applicable interest rate and applicable mortality table in effect on the plan’s termination date, but the time for determining the specific assumptions is based on the distribution date.
The PBGC further notes that plan provisions which incorporate the PPA-mandated changes cannot take effect for purposes of ERISA §4041 before the first plan year beginning on or after January 1, 2008. Therefore, the PBGC reasons, such plan provisions, whether modified before or after the termination date, are not effective for a plan with a termination date before the beginning of its 2008 plan year, even if the distribution date is after the 2007 plan year.
The PBGC notes that this guidance does not address whether the applicable interest rate and applicable mortality table would be those in effect on the plan’s termination date or those in effect on the distribution date, when both dates are subsequent to January 1, 2008. The PBGC indicates that it intends to address this situation in future guidance.
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