The Pension Benefit Guaranty Corporation ("PBGC") annually prepares a list of the 50 companies whose pension plans have the largest amounts of unfunded guaranteed benefits. The pension underfunding of the 50 companies on the 1994 Top 50 list represented about 56 percent of the unfunded vested liabilities in single-employer plans insured by the PBGC.
This Technical Update provides companies with information on the interest and mortality assumptions that the PBGC will use to calculate unfunded benefits for the 1995 Top 50 list.
II. Top 50 Procedures
The PBGC uses public data to identify those companies with pension plans with $25 million or more in 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. Unless it has actual mortality information, the PBGC assumes that plan liabilities were valued using the UP-84 mortality table and adjusts to a specified mortality table (in 1994, GAM 83).
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 their plans use and on the plans' assets and liabilities. Plan sponsors are asked to eliminate any pension plans not insured by the PBGC, and are instructed not to net any overfunded plans against the underfunded plans because neither the PBGC nor a participant in an underfunded plan has a legal right to claim assets of an overfunded plan.
Plan sponsors are advised that the PBGC assumes guaranteed benefit liabilities to be 95 percent of adjusted vested benefit liabilities, but have the option of providing the PBGC with the plan's actual guaranteed benefit liabilities. Plan sponsors also are given an opportunity to inform the PBGC of any contributions that they will make to the plan by September 15.
III. 1995 PBGC Assumptions
The PBGC advises plan sponsors of the interest rate and mortality assumptions it uses to adjust the public data at the time it gives plan sponsors the opportunity to provide the PBGC with more precise information. To give companies more time to analyze their plan data and determine what contributions they wish to make, the PBGC is announcing its 1995 interest and mortality assumptions at this time.
For the 1995 Top 50 list, the PBGC will adjust plan liabilities using an interest rate of 7.15 percent and the GAM 83 mortality table. The 7.15 percent rate includes a 15 basis point reduction to reflect administrative expense loading. Plan sponsors have the option of calculating administrative expenses in accordance with the procedures in PBGC regulations at 29 CFR 2619.49(a)(4) and Appendix C to Part 2619. Use of the GAM 83 mortality table continues unchanged from 1994.
Later this year, the PBGC will send letters to companies with significant pension underfunding providing more detailed instructions.