PBGC issues guidance on determination of premiums under MAP-21

The PBGC has issued a technical update providing guidance on how the determination of premiums is affected by the enactment of the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141). The PBGC said that it expects to issue guidance about the effect of MAP-21 on ERISA §4010 filings in the near future.

The PBGC noted that the guidance in the technical update supersedes any inconsistent guidance in its 2012 premium instructions and will be reflected in the 2013 premium instructions.

Variable rate premiums

Effective beginning in 2012, MAP-21 establishes stabilization rules that limit the volatility of certain discount rates used for funding purposes by constraining them within a corridor.
MAP-21 also amends ERISA §4006(a)(3)(E) to provide that the stabilization rules do not apply to the discount rates used to determine the variable-rate premium “notwithstanding any regulations issued by [PBGC].” Thus, the stabilization rules do not apply to the discount rates used to calculate the standard premium funding target under ERISA §4006(a)(3)(E) and PBGC Reg. §4006.4(b) or to the alternative premium funding target under PBGC Reg. §4006.5(g).

The technical update provides an illustrative example of these rules.

A plan uses at-risk retirement and form of payment assumptions to determine its premium funding target only if the plan is in at-risk status for minimum funding purposes for the premium payment year.

The technical update specifies that the asset value used to determine the variable-rate premium continues to be the amount determined under ERISA §303 for funding purposes, taking into account the rules about disregarding averaging and certain prior-year contributions in PBGC Reg. §4006.4(c) (generally, the amount required to be reported on line 2a of Schedule SB of Form 5500). This is the case even if contributions made after the valuation date were discounted for funding purposes using an effective interest rate that was based on stabilized rates.

Post-2012 premium rates

Effective beginning in 2013, MAP-21 changes the flat and variable premium rates and puts a cap on the variable-rate premium. Each flat or variable rate is subject to a different inflation adjustment, and the variable-rate premium cap has its own inflation adjustment.

Source: PBGC Technical Update 12-1

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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