PBGC Proposes Changes to Assumptions Used in Certain Valuations

The Pension Benefit Guaranty Corporation (PBGC) has released a proposed rule titled Valuations Assumptions and Methods. The rule would amend subpart B of the PBGC’s regulation Allocation of Assets in Single-Employer Plansand update the interest, mortality, and expense assumptions used to determine the present value of benefits for a single-employer pension plan ending in a distress or involuntary termination. The assumptions are also used for certain multiemployer withdrawal liability calculations and for other purposes.

Major provisions of the proposal include the following.

  • Modernizing the interest assumption structure by adopting a yield curve approach
  • Enabling the use of market interest rates as of the date of liability measurement (i.e., the valuation date) as the basis for the interest assumption
  • Increasing transparency by using a procedure based on publicly available yield curves as of the valuation date
  • Adopting a more recent mortality table along with a generational mortality improvement projection
  • Simplifying the expense assumption

The PBGC has also released a white paper, describing the methodology that it intends to use in determining the ERISA 4044 Yield Curve (assuming the proposed rule is finalized without changes). There is a 60-day comment period upon publication in the Federal Register.