This Technical Update allows plan administrators and employers to use 100% (rather than 85%) of the yield on 30-year Treasury securities (the "Treasury yield") for purposes of reporting to the Pension Benefit Guaranty Corporation (PBGC) under sections 4010 and 4043 of the Employee Retirement Income Security Act (ERISA) for the following years:
- In the case of annual employer financial and actuarial reporting under section 4010 of ERISA, this relief applies for information years ending in calendar years 2002 or 2003.
- In the case of post-event reporting under section 4043(a) of ERISA, this relief applies to reportable events that occur in calendar years 2002 or 2003.
- In the case of advance reporting under section 4043(b) of ERISA, this relief applies to reportable events with effective dates in calendar years 2002 or 2003.
This Technical Update also provides information for premium filers related to the statutory change from 85% to 100% of the Treasury yield in the interest rate used to calculate the variable rate premium (VRP) under section 4006 of ERISA for plan years beginning in 2002 or 2003.
I. Job Creation and Worker Assistance Act of 2002
Variable Rate Premium. Section 405 of the Job Creation and Worker Assistance Act of 2002 (JCWAA) increases the required interest rate for calculating vested benefits for the PBGC VRP under section 4006(a)(3)(E)(iii) of ERISA from 85% to 100% of the Treasury yield. The statutory change applies only to plan years beginning in 2002 or 2003 and does not apply for purposes of other provisions -- such as reporting requirements -- that refer to the premium calculation.
Deficit Reduction Contribution. JCWAA section 405 also changes, for plan years beginning in 2002 or 2003, the maximum interest rate that may be used to calculate current liability for purposes of the Deficit Reduction Contribution (DRC) funding requirement. The DRC is an additional funding requirement that applies to certain underfunded single-employer plans under section 302 of ERISA and section 412 of the Internal Revenue Code.
II. Employer Annual Reporting Under ERISA Section 4010
ERISA section 4010 and the PBGC's regulations on Annual Financial and Actuarial Information Reporting (29 CFR Part 4010) require controlled group members to file single-employer plan actuarial information and company financial information with PBGC if the aggregate unfunded vested benefits in plans maintained by members of the controlled group exceed $50 million (disregarding plans with no unfunded vested benefits). This computation is made using the VRP interest rate. A plan's unfunded vested benefits are determined as of the end of its plan year that ends within the filer's Information Year.
JCWAA leaves unchanged at 85% of the Treasury yield the interest rate for purposes of section 4010. Nevertheless, pursuant to § 4010.11 of the regulations, PBGC will allow plans to use 100% of the Treasury yield to value vested benefits for purposes of the $50 million test for Information Years ending in 2002 or 2003. Filers may use 100% of the Treasury yield for all plans included in the calculation, regardless of their plan years. This Technical Update does not affect § 4010.4(b)(2) of the regulations, which already allows use of 100% of the Treasury yield, but only if certain other specified assumptions are used.
III. Post-Event Reportable Events Notices under ERISA Section 4043
ERISA Section 4043(a) and PBGC's regulations (29 CFR §§ 4043.1 - 4043.35) require plan administrators and contributing sponsors to notify PBGC within 30 days after they know or have reason to know that a reportable event has occurred ("post-event notice"). The regulations waive reporting for several of these events if certain criteria are met. Several of the waiver criteria are tied to the VRP calculation. In addition, PBGC Technical Update 97-6 waives reporting of missed quarterly contributions for certain plans that are exempt from the Participant Notice requirement of ERISA section 4011 either for the current plan year (the one for which the contribution is owed) or for the prior plan year.
PBGC's regulations also extend the due date for the post-event notice for several reportable events if certain criteria are met. Among the criteria for the extended due date is that the notice requirement would have been waived if the waiver criteria under the regulation were based on the premium calculation for the plan year preceding the plan year in which the reportable event occurs.
JCWAA leaves unchanged at 85% of the Treasury yield the interest rate for purposes of section 4043. However, pursuant to § 4043.4(d) of the regulations, PBGC is providing the following relief for reportable events that occur in calendar years 2002 or 2003:
- Plans may use 100% (rather than 85%) of the Treasury yield to value vested benefits wherever the regulations refer to the vested benefit amount or to unfunded vested benefits or to whether a VRP was payable, as a criterion for waiver of the notice requirement or for an extension of the due date for the notice. This waiver and extension relief applies even if the plan year involved began before calendar year 2002.
- A plan subject to the Participant Notice exemption criterion under Technical Update 97-6 for waiver of reporting of missed quarterly contributions will be treated as satisfying that criterion if, either for the current plan year (the one for which the contribution is owed) or for the prior plan year, no VRP was payable or no VRP would have been payable if the plan had used 100% (rather than 85%) of the Treasury yield to value vested benefits. This rule applies even if the plan year began before calendar year 2002.
IV. Advance Notice Reportable Events under ERISA Section 4043
ERISA section 4043(b) requires a non-public company to give PBGC notice at least 30 days before the effective date of certain events ("advance notice") if (1) the aggregate unfunded vested benefits of plans maintained by members of the controlled group exceeds $50 million (disregarding plans with no unfunded vested benefits) and (2) the aggregate funded vested benefit percentage for the underfunded plans is less than 90 percent. (See PBGC's regulations at 29 CFR §§ 4043.1 - 4043.8 and §§ 4043.61-4043.68.) Vested benefits for both the $50 million and the 90% funding percentage threshold tests are computed using the VRP interest rate as of the "testing date" for the plan year that includes the effective date of the reportable event.
JCWAA leaves unchanged at 85% of the Treasury yield the interest rate for purposes of section 4043. However, pursuant to § 4043.4(d) of the regulations, PBGC will allow use of 100% of the Treasury yield for both advance notice threshold tests for all plans in the controlled group, regardless of their plan years, for reportable events with effective dates in calendar years 2002 or 2003. Use of 100% of the Treasury yield under this Technical Update does not affect any other actuarial assumptions or methods used to determine the reporting threshold.
V. Participant Notices Under ERISA Section 4011
Plan administrators of certain underfunded PBGC-insured plans are required to issue a Participant Notice under section 4011 of ERISA stating the plan's funded current liability percentage and describing the limitations on PBGC's guarantee. Plans for which a VRP is not required for a plan year are not required to issue a Participant Notice for that plan year.
JCWAA does not allow use of 100% of the Treasury yield to determine whether a plan must issue a Participant Notice. Thus, plans must continue to use 85% of the Treasury yield for this purpose.
PBGC does not have authority to waive the Participant Notice. However, legislation (H.R. 3762) that would allow use of 100% of the Treasury yield for purposes of ERISA section 4011 for plan years 2002 and 2003 has passed the House and is pending in the Senate. Although PBGC would normally have issued a Technical Update in March, 2002, with guidance for the 2002 Participant Notice, PBGC will wait until mid-summer to issue the guidance because the law may change in the next few months; the earliest due date for the 2002 Participant Notice is not until September 30, 2002 (the due date for calendar year plans that do not have an extension for filing the 2001 Form 5500).
Section 4011 of ERISA provides an exemption from the Participant Notice requirement for a plan year if a plan meets a "DRC Exception Test" for that plan year or for the prior plan year. The change made by JCWAA in the interest rate for purposes of the DRC (see section I. above) applies to this "DRC Exception Test" for purposes of ERISA section 4011.
VI. Increase in Required Interest Rate for Computing Variable Rate Premiums for Plan Years Beginning in 2002 and 2003
Single-employer defined benefit plans insured by the PBGC are subject to a flat-rate premium of $19 per plan participant and a variable rate premium of $9 per $1,000 of unfunded vested benefits.
The interest rate for calculating vested benefits for purposes of the VRP ("VRP interest rate") is specified in section 4006(a)(3)(E)(iii) of ERISA. The VRP interest rate in effect before enactment of JCWAA was 85% of the Treasury yield for the calendar month preceding the calendar month in which the plan year begins. For plan years beginning in 2002 or 2003, JCWAA increases the VRP interest rate to 100% of the Treasury yield. No other valuation assumptions or methods are affected by this change.
Plan administrators should continue to use current 2002 premium forms. The forms are not affected by whether 85% or 100% of the Treasury yield is used. However, plan administrators should disregard the reference to 85% of the Treasury yield in the definition of "required interest rate" on page 4 of the Instructions in the 2002 Premium Payment Package. PBGC is posting the new VRP interest rates on its web site (www.PBGC.gov) and will also post revised instructions on the web site.
VII. PBGC Contact Points
If you have questions about this Technical Update, contact Gail Sevin of the Corporate Policy and Research Department at (202) 229-4080, ext. 3011 or Sevin.Gail@PBGC.gov. Questions about specific section 4010 filings or specific section 4043 advance-notice filings should be directed to Ruth Williams of the Corporate Finance and Negotiations Department at (202) 229-4070, ext. 6744 or Williams.Ruth@PBGC.gov.