The PBGC annually prepares a list of 50 companies whose pension plans have large amounts of unfunded guaranteed benefits. This Technical Update provides companies with information on the interest and mortality assumptions that the PBGC will use to calculate unfunded benefits for the 1997 Top 50 list. The early release of this information gives companies more time to analyze plan data and determine if they wish to make additional contributions to their plans.
The PBGC uses public data to identify those companies with pension plans that have significant amounts of unfunded vested benefit liabilities. Because each company reports pension liabilities using its plan's own interest rate and mortality assumptions, the public data is not comparable among companies.
To reduce this inconsistency, the PBGC adjusts each company's reported pension liabilities using consistent interest rate and mortality assumptions. The PBGC then contacts each company in writing and gives plan sponsors an opportunity to review the initial data and provide the PBGC with more precise information on the mortality table that each plan uses and on each plan's assets and liabilities.
For the 1997 Top 50 list, the PBGC will adjust plan liabilities using an interest rate of 5.80 percent and the GAM 83 mortality table. The 5.80 percent rate includes a 10 basis point reduction to reflect administrative expense loading. Those plan sponsors that choose to calculate plan administrative expenses in accordance with the procedures in PBGC regulations at 29 CFR 4044.52(a)(5) and Appendix C to Part 4044, may use an interest rate of 5.90 percent.
PBGC assumes guaranteed benefit liabilities to be 95 percent of adjusted vested benefit liabilities, but plan sponsors have the option of providing the PBGC with the plan's actual guaranteed benefit liabilities as of December 31, 1996. Plan sponsors also are given an opportunity to inform the PBGC of, and count in assets, any contributions that they will make to the plan by September 15, 1997.
The PBGC will send letters later this year to companies with significant pension underfunding providing more detailed instructions.
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