ACTUARIAL VALUATION REPORT - 2006 FISCAL YEAR

Overview

For the multiemployer program, the liability as of September 30, 2006 consisted of:
(1)        $2 million for 10 pension plans that terminated before the passage of the Multiemployer Pension Plan Amendments Act (MPPAA) and of which PBGC is trustee; and
(2)        $1,876 million for probable and estimable post‑MPPAA losses due to financial assistance to85 multiemployer pension plans that were, or were expected to become, insolvent. 
The results of the valuation (the present value of future benefits and nonrecoverable financial assistance) are presented in Table 1 and are displayed in the graphs on pages 7 and 8.

* Fewer than 500 participants

Notes:

Single-Employer Program

Seriatim at FYE Method

Seriatim at DOPT Method

Nonseriatim Method

Distribution of FYE06 Single-Employer Liability by
Method of Calculation

Liability for Benefits: $82,055

(Dollars in Millions)

*Seriatim at FYE includes the Rettig Settlement and the Missing Participants Program

Distribution of FYE06 Single-Employer Plans by
Method of Calculation

                                  Total Plans: 3,700                

Pi

Rettig Settlement

Missing Participants Program

The Missing Participants Program refers to a responsibility that PBGC has assumed under the Retirement Protection Act of 1994 to act as a clearinghouse for unlocated participants in standard plan terminations.  As with other parts of the PVFB, only the liabilities are shown here.  Because plan administrators have transferred a corresponding asset amount to PBGC, the net increase in liabilities of PBGC due to this program, if any, will be negligible. Changes to this program due to the Pension Protection Act of 2006 have not yet been implemented .

Collins Settlement

Multiemployer Program

There were a total of 10 pre‑MPPAA terminations, 9 of which were granted discretionary coverage under the provisions of ERISA as passed in 1974.  The remaining plan terminated when coverage under Title IV was mandatory (from August 1, 1980 until September 25, 1980).  PBGC calculated the liability for these 10 terminations under the seriatim at FYE method using the same assumptions as for the single‑employer program.

The post‑MPPAA portion of the liability represented the present value, as of September 30, 2006, of net losses that PBGC expected to incur from non‑recoverable future financial assistance to 85 pension plans, that were, or were expected to become, insolvent. The liability for each plan was calculated (using the cash flow method) as the present value of future guaranteed benefit and expense payments, net of the present value of future employer contributions and withdrawal liability payments. This liability was determined as of the later of September 30, 2006 and the actual or projected date of insolvency, and then discounted back to September 30, 2006 using interest only. The most recent available actuarial reports and information provided by representatives of the affected plans served as the basis for the valuations.

Projected benefit payments were estimated based on liabilities, current benefit payments and estimated average ages for actives, terminated vesteds and retirees from the most recent actuarial reports, combined with assumptions of retirement ages and of future rates of mortality and termination.  Projected expense payments were estimated as a constant percentage of the projected benefit payments; this percentage is equal to the ratio of current expense payments to current benefit payments.  The projected date of insolvency was then established using a cashflow model with initial assets, expense payments, contributions, projected benefit and withdrawal liability payments as inputs, estimated when necessary.

The post-MPPAA liability as of September 30, 2006 is about $391 million higher than it was a year earlier. In addition to a modest net increase due to the combined effect of the passage of time, data changes, and the changes in the liability discount rate, mortality assumptions and assumed rate of return, this increase in liability is mostly attributable to a net increase of eight plans in the plans classified as post-MPPAA probable plans in FY 2006.

Actuarial Assumptions, Methods, and Procedures

As in previous valuations, the select and ultimate interest factors used to value PBGC’s liabilities were derived using an assumed underlying mortality basis and current annuity purchase prices.  The interest factors so determined for the 2006 valuation were 4.85% for the first 25 years after the valuation date and 4.82% thereafter.  For the 2005 valuation the interest factors were 5.2% for the first 25 years and 4.5% thereafter.These interest factors are dependent upon PBGC’s mortality assumption.

Beginning with the FY 2004 valuation, the mortality assumptions were updated by adopting the recommendations from a study by an independent consulting firm.  The study recommended that, when conducting valuations for its financial statements, the PBGC use the male and female 1994 Group Annuity Mortality Tables, set forward one year, for healthy males and females. The study also recommended that continuing mortality improvements be taken into account by using Projection Scale AA to project these tables a fixed number of years. At each valuation date the fixed number of years will be determined as the sum of the elapsed time from the date of the table (1994) to the valuation date, plus the period of time from the valuation date to the average date of payment of future benefits (the duration). This is an approximation to a generational mortality table. Thus, the mortality table used for healthy lives in the 2006 valuation is the 1994 Group Annuity Mortality Table, set forward one year, projected 22 years to 2016 using Scale AA. The 22 years recognizes the 12 years from 1994 to 2006 plus the 10 year duration of the 9/30/05 liabilities. The 2005 assumption incorporated a 22 year projection, determined as the sum of the 11 year from 1994 to 2005 and the 11 year duration of the 9/30/04 liabilities. Consequently, the mortality table used for 2006 is the same as that used for 2005.

The model used to determine the reserve for future administrative expenses was updated in FY 2000 based on a study by an independent consultant. The same model was used in FY 2006. The factors used in the expense reserve formula are shown in Table 2C.

Retirement age assumptions were not changed.

The SPARR (Small Plan Average Recovery Ratio) assumptions as shown in Table 2B were updated to reflect the SPARR calculated for FY2004 (3.42%). The SPARRs for subsequent years are assumed to equal the FY2004 SPARR.

A major accomplishment in fiscal year 2006 was the completion of our work in time to meet the accelerated (November 15) deadline for PBGC’s financial statements. We also made several technical improvements to our valuation system, enhancing our ability to calculate the value of benefit supplements and to determine Qualified Pre-Retirement Survivor Annuity (QPSA) benefits for participants with deferred benefits. We improved the IPVFB system to distinguish between true lump sums paid and lump sums paid for back payments for nonseriatim plans. Accordingly, the system more accurately calculates liabilities that are affected by these payments.

We continue our ongoing efforts to maintain the quality of the seriatim data and, as in other years, made various changes to improve the accuracy, speed, security and auditability of the calculations and to integrate with the evolving PBGC computer environment.

The SPARR is used in the calculation of the liability for benefits determined under section 4022(c) of ERISA, which provides participants with a portion of PBGC’s recoveries. The SPARR is determined by PBGC for terminations initiated in a given fiscal year based on actual recoveries and unfunded benefit liabilities for plan terminations initiated during the preceding 5 years.  As of the end of fiscal year 2006, the SPARR had been calculated for plan terminations initiated in fiscal years 1991-2004. Because subsequent SPARRs have not been calculated, the 2004 SPARR is assumed for fiscal years 2005 and 2006.

* In addition to the reserve factors shown, an expense reserve equal to 1.18% of the liability for benefits applies to both Large Plans and Small Plans.

Data Sources and Assumptions
The seriatim portion of this valuation was based on participant data maintained by PBGC’s Benefits Administration & Payment Department.  For the seriatim liability, benefit amounts have been determined for each participant using plan documents, together with ERISA and PBGC regulations relating to guaranteed benefits and the allocation of assets.  If specific data were not available for deferred vested participants under the seriatim method, participants were assumed to be married and to elect the qualified Joint and Survivor (J&S) benefit; wives were assumed to be four years younger than their husbands. When certain other data elements for a participant were missing, they were replaced by the average for the plan.  When the plan average was not available, the average for all plans valued seriatim was used.

The nonseriatim liability was based on the plan's most recent actuarial valuation performed before the termination date that is available to PBGC.  The valuation information generally was obtained from actuarial reports or Schedule B filings.  For nonseriatim plans and probable terminations, provision generally has been made to reduce benefits to guaranteed levels. Attained ages for active participants, terminated vested participants, and retired participants were assumed to be ages 50, 50 and 65 respectively for new nonseriatim plans when plan data were unavailable.  For post-MPPAA multiemployer plans, the assumed ages are 55, 57 and 65, respectively.

Auditors’ Opinion
PBGC’s 2006 financial statements have received an unqualified opinion from PBGC’s auditors, Clifton Gunderson, LLP. The Present Value of Future Benefits and Nonrecoverable Future Financial Assistance and its underlying data are covered by this opinion.  The auditors performed numerous tests of both data and procedures to support this opinion.

Valuation Statistics
The FY 2006 valuation for the single‑employer program included approximately 1,161,000 participants owed future payments in terminated plans as of September 30, 2006 and approximately 128,000 participants in plans that will probably terminate.  For the multiemployer program, the FY 2006 valuation included, as of September 30, 2006, 272 participants in terminated pre‑MPPAA plans and approximately 110,000 participants in plans receiving or expected to receive financial assistance.  Of these, about 632,000 participants from terminated single‑employer plans and 256 participants from terminated multiemployer plans were receiving benefits from PBGC at fiscal year-end.

The average monthly benefit  paid by PBGC for participants in pay status during FY 2006 was $517 (including supplemental benefits) for the single‑employer program and $126 for the multiemployer program.  

Tables 3 through 6 summarize the detailed results of the seriatim and nonseriatim valuations for both the single‑employer and multiemployer programs.

*Less than 0.5% or less than $500,000
**Approximately 12% of participants are receiving supplemental benefits

Note: The liability in this table does not include the liabilities for the Rettig Settlement or the Missing Participants Program

*Less than 0.5% or less than $500,000
**Approximately 1% of participants (not including others)will receive supplemental benefits.
***Other refers to participants scheduled at year-end for lump sum payments.
Note: The liability in this table does not include the liabilities for the Rettig Settlement or the Missing Participants Program.

Notes:

1) Final DOPT benefits refer to those benefits that PBGC has determined and valued seriatim as of DOPT for the plan.  Non‑Final DOPT benefits are estimates of these final DOPT benefits.
2)  Large Plans in this table are those whose present value of Title IV benefits at DOPT equals or exceeds $10 million.
3)  The liability shown in this table does not include the liability for settlements.
4) The liability for probable plans is shown as a gross amount (i.e., plan assets and collections on employer liabilities are not subtracted from the liability for benefits).  Also, the numbers in this table do not include the liability for not yet identified probable terminations.

* Less than .05%

Notes:
1)  Recipient status for Seriatim, Missing Participants, IBNR, Collins and Rettig liabilities refers to status as of 9/30/06. For Nonseriatim and Probable liabilities, recipient status refers to the status as of the most recent actuarial valuation report (date of plan termination if benefits are "final").  The term "final" is defined in the notes to Table 5.
2)  The Probable liabilities are shown as gross amounts (i.e., plan assets and collections on employer liabilities are not subtracted from the liability for benefits).

* Fewer than 500 participants or less than .05%

Notes:
1)  Recipient status for Seriatim, Missing Participants and Rettig liabilities refers to status as of 9/30/06.  For Nonseriatim and Probable liabilities, recipient status refers to the status as of the most recent actuarial valuation report (date of plan termination if benefits are "final").  The term "final" is defined in the notes to Table 5.
2)  Participant counts for IBNR and Collins are not included.

Reconciliation of Results

Table 7 reconciles the FY 2006 valuation with the FY 2005 valuation.  It shows that the $4,512 million decrease in the liability for the single‑employer program was the net effect of:

The multiemployer columns reconcile both the liability for the pre‑MPPAA terminated plans and the liability for the post‑MPPAA financial assistance to insolvent plans.

Notes:
* Includes change from expected benefits ($3,844.41 million) to actual benefits ($4,082.19 million) in Total Single Employer.
  Includes change from expected benefits ($0.42 million) to actual benefits ($0.44 million)  in Pre-MPPAA Multiemployer.
  Includes change from expected benefits ($70.95 million) to actual benefits ($69.92 million) in Post-MPPAA Multiemployer.
  Actual does not include payments made by employers.
** Includes $14.98 million decrease for SPARR assumption change
*** Includes $87 million  for  unidentified probable terminations. Financial statements show a probables liability of $17,430 million, less assets of  $12,568 million, for a net claim of $4,862 million.

Statement of Actuarial Opinion

This valuation has been prepared in accordance with generally accepted actuarial principles and practices and, to the best of my knowledge, fairly reflects the actuarial present value of the Corporation's liabilities for the single employer and multiemployer plan insurance programs as of September 30, 2006. In preparing this valuation, I have relied upon information provided to me regarding plan provisions, plan participants, plan assets, and other matters. In my opinion,
(1) the techniques and methodology used for valuing these liabilities are generally acceptable within the actuarial profession;
(2) the assumptions used are appropriate for the purposes of this statement and are individually my best estimate of expected future experience discounted using current settlement rates from insurance companies; and
(3) the resulting total liability represents my best estimate of anticipated experience under these programs.