[Code of Federal Regulations]
[Title 29, Volume 9]
[Revised as of July 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR4006.4]
[Page 760-764]
TITLE 29--LABOR
CHAPTER XL--PENSION BENEFIT GUARANTY CORPORATION
PART 4006_PREMIUM RATES--Table of Contents
Sec. 4006.4 Determination of unfunded vested benefits.
(a) General rule. Except as permitted by paragraph (c) of this
section or as provided in the exemptions and special rules under Sec.
4006.5, the amount of a plan's unfunded vested benefits (as defined in
paragraph (b) of this section) shall be determined as of the last day of
the plan year preceding the premium payment year, based on the plan
provisions and the plan's population as of that date. The determination
shall be made in accordance with paragraph (a)(1) or (a)(2), and shall
be certified to in accordance with paragraph (a)(4).
(1) The unfunded vested benefits shall be determined using the
actuarial assumptions and methods described in paragraph (a)(3) for the
plan year preceding the premium payment year (or, in the case of a new
or newly-covered plan, for the premium payment year), except to the
extent that other actuarial assumptions or methods are specifically
prescribed by this section or are necessary to reflect the occurrence of
a significant event described in paragraph (d) of this section between
the date of the funding valuation and the last day of the plan year
preceding the premium payment year. (If the plan
[[Page 761]]
does a valuation as of the last day of the plan year preceding the
premium payment year, no separate adjustment for significant events is
needed.)
(2) Under this rule, the determination of the unfunded vested
benefits may be based on a plan valuation done as of the first day of
the premium payment year, provided that--
(i) The actuarial assumptions and methods used are those described
in paragraph (a)(3) for the premium payment year, except to the extent
that other actuarial assumptions or methods are specifically prescribed
by this section or are required to make the adjustment described in
paragraph (a)(2)(ii) of this section; and
(ii) If an enrolled actuary determines that there is a material
difference between the values determined under the valuation and the
values that would have been determined as of the last day of the
preceding plan year, the valuation results are adjusted to reflect
appropriately the values as of the last day of the preceding plan year.
(This adjustment need not be made if the unadjusted valuation would
result in greater unfunded vested benefits.)
(3) For purposes of paragraphs (a)(1) and (a)(2), the actuarial
assumptions and methods for a plan year are those used by the plan for
purposes of determining the additional funding requirement under section
302(d) of ERISA and section 412(1) of the Code (or, in the case of a
plan that is not required to determine such additional funding
requirement, any assumptions and methods that would be permitted for
such purpose if the plan were so required).
(4) In the case of any plan that determines the amount of its
unfunded vested benefits under the general rule described in this
paragraph, an enrolled actuary must certify, in accordance with the PBGC
annual Premium Payment Package provided for in Sec. 4007.3 of this
part, that the determination was made in a manner consistent with
generally accepted actuarial principles and practices.
(b) Unfunded vested benefits. The amount of a plan's unfunded vested
benefits under this section shall be the excess of the plan's vested
benefits amount (determined under paragraph (b)(1) of this section) over
the value of the plan's assets (determined under paragraph (b)(2) of
this section).
(1) Vested benefits amount. A plan's vested benefits amount under
this section shall be the plan's current liability (within the meaning
of section 302(d)(7) of ERISA and section 412(1)(7) of the Code)
determined by taking into account only vested benefits and by using an
interest rate equal to the applicable percentage of the annual yield for
30-year Treasury constant maturities, as reported in Federal Reserve
Statistical Release G.13 and H.15, for the calendar month preceding the
calendar month in which the premium payment year begins. If the interest
rate (or rates) used by the plan to determine current liability was (or
were all) not greater than the required interest rate, the vested
benefits need not be revalued if an enrolled actuary certifies that the
interest rate (or interest rates) used was (or were all) not greater
than the required interest rate. For purposes of this paragraph (b)(1)
(subject to the provisions of Sec. 4006.5(g), dealing with plans of
regulated public utilities), the applicable percentage is--
(i) For a premium payment year that begins before July 1997, 80
percent;
(ii) For a premium payment year that begins after June 1997 and
before the first premium payment year to which the first tables
prescribed under section 302(d)(7)(C)(ii)(II) of ERISA and section
412(1)(7)(C)(ii)(II) of the Code apply, 85 percent; and
(iii) For the first premium payment year to which the first tables
prescribed under section 302(d)(7)(C)(ii)(II) of ERISA and section
412(1)(7)(C)(ii)(II) of the Code apply and any subsequent plan year, 100
percent.
(2) Value of assets--(i) Actuarial value. For a premium payment year
that is described in paragraph (b)(1)(i) or (b)(1)(ii) of this section,
the value of the plan's assets shall be their actuarial value determined
in accordance with section 302(c)(2) of ERISA and section 412(c)(2) of
the Code.
(ii) Fair market value. For a premium payment year that is described
in paragraph (b)(1)(iii) of this section, the value of the plan's assets
shall be their fair market value.
[[Page 762]]
(iii) Use of credit balance. The value of the plan's assets shall
not be reduced by a credit balance in the funding standard account.
(iv) Contributions. Contributions owed for any plan year preceding
the premium payment year shall be included for plans with 500 or more
participants and may be included for any other plan. Contributions may
be included only to the extent such contributions have been paid into
the plan on or before the earlier of the due date for payment of the
variable-rate portion of the premium under Sec. 4007.11 or the date
that portion is paid. Contributions included that are paid after the
last day of the plan year preceding the premium payment year shall be
discounted at the plan asset valuation rate (on a simple or compound
basis in accordance with the plan's discounting rules) to such last day
to reflect the date(s) of payment. Contributions for the premium payment
year may not be included for any plan.
(c) Alternative method for calculating unfunded vested benefits. In
lieu of determining the amount of the plan's unfunded vested benefits
pursuant to paragraph (a) of this section, a plan administrator may
calculate the amount of a plan's unfunded vested benefits under this
paragraph (c) using the plan's Form 5500, Schedule B, for the plan year
preceding the premium payment year. Pursuant to this paragraph (c),
unfunded vested benefits shall be determined, in accordance with the
Premium Payment Package, from values for the plan's vested benefits and
assets that are required to be reported on the plan's Schedule B. The
value of the vested benefits shall be adjusted in accordance with
paragraph (c)(1) of this section to reflect accruals during the plan
year preceding the premium payment year and with paragraph (c)(2) of
this section to reflect the interest rate prescribed in paragraph (b)(1)
of this section, and the value of the assets shall be adjusted in
accordance with paragraph (c)(4) of this section. (If the plan
administrator certifies that the interest rate (or rates) used to
determine the vested benefit values taken from the Schedule B was (or
were all) not greater than the interest rate prescribed in paragraph
(b)(1) of this section, the interest rate adjustment prescribed in
paragraph (c)(2) of this section is not required.) The resulting
unfunded vested benefits amount shall be adjusted in accordance with
paragraph (c)(5) of this section to reflect the passage of time from the
date of the Schedule B data to the last day of the plan year preceding
the premium payment year.
(1) Vested benefits adjustment for accruals. The total value of the
plan's current liability as of the first day of the plan year preceding
the premium payment year for vested benefits of active and terminated
vested participants not in pay status, computed in accordance with
section 302(d)(7) of ERISA and section 412(l)(7) of the Code, shall be
adjusted to reflect the increase in vested benefits attributable to
accruals during the plan year preceding the premium payment year by
multiplying that value by 1.07.
(2) Vested benefits interest rate adjustment. The value of vested
benefits as entered on the Schedule B shall be adjusted in accordance
with the following formula (except as provided in paragraph (c)(3) of
this section) to reflect the interest rate prescribed in paragraph
(b)(1) of this section:
VBadj =
VBPAYx.94(RIR-BIR)+VBNON-PAY
x.94(RIR-BIR)x((100+BIA)/ (100+RIR))(ARA-50);
where--
(i) VBadj is the adjusted vested benefits amount (as of
the first day of the plan year preceding the premium payment year) under
the alternative calculation method;
(ii) VBPAY is the plan's current liability as of the
first day of the plan year preceding the premium payment year for vested
benefits of participants and beneficiaries in pay status, computed in
accordance with section 302(d)(7) of ERISA and section 412(l)(7) of the
Code;
(iii) VBNON-PAY is the total of the plan's current
liability as of the first day of the plan year preceding the premium
payment year for vested benefits of active and terminated vested
participants not in pay status, computed in accordance with section
302(d)(7) of ERISA and section 412(l)(7) of the Code, multiplied by 1.07
in accordance with paragraph (c)(1) of this section;
[[Page 763]]
(iv) RIR is the required interest rate prescribed in paragraph
(b)(1) of this section;
(v) BIR is the post-retirement current liability interest rate used
to determine the pay-status current liability figure referred to in
paragraph (c)(2)(ii) of this section;
(vi) BIA is the pre-retirement current liability interest rate used
to determine the pre-pay-status current liability figures referred to in
paragraph (c)(2)(iii) of this section; and
(vii) ARA is the plan's assumed weighted average retirement age.
(3) Optional use of substitution factors in interest rate adjustment
formula. In lieu of the term, .94 (RIR-BIR) in the formula
prescribed by paragraph (c)(2) of this section, a plan administrator may
use the optional substitution factor provided in the Premium Payment
Package.
(4) Adjusted value of plan assets. The value of plan assets shall be
the actuarial value of plan assets as of the first day of the plan year
preceding the premium payment year, determined in accordance with
section 302(c)(2) of ERISA and section 412(c)(2) of the Code without
reduction for any credit balance in the plan's funding standard account,
unless that amount was determined as of a date other than the first day
of the plan year preceding the premium payment year or the premium
payment year is described in Sec. 4006.4(b)(1)(iii). In either of those
events, the value of plan assets shall be the current value of assets
(as reported on Form 5500) as of that first day or (if Form 5500-EZ is
filed) as of the last day of the plan year preceding the Schedule B
year. The value of assets from the Schedule B shall be adjusted in
accordance with paragraph (b)(2) of this section, except that the amount
of all contributions that are included in the value of assets and that
were made after the first day of the plan year preceding the premium
payment year shall be discounted to such first day at the interest rate
prescribed in paragraph (b)(1) of this section for the premium payment
year, compounded annually except that simple interest may be used for
any partial years.
(5) Adjustment for passage of time. The amount of the plan's
unfunded vested benefits shall be adjusted to reflect the passage of
time between the date of the Schedule B data (the first day of the plan
year preceding the premium payment year) and the last day of the plan
year preceding the premium payment year in accordance with the following
formula:
UVBadj = (VBadj-Aadj)x(1+RIR/
100)Y;
where--
(i) UVBadj is the amount of the plan's adjusted unfunded
vested benefits;
(ii) VBadj is the value of the adjusted vested benefits
calculated in accordance with paragraphs (c)(1) and (c)(2) of this
section;
(iii) Aadj is the adjusted asset amount calculated in
accordance with paragraph (c)(3) of this section;
(iv) RIR is the required interest rate prescribed in paragraph
(b)(1) of this section; and
(v) Y is deemed to be equal to 1 (unless the plan year preceding the
premium payment year is a short plan year, in which case Y is the number
of years between the first day and the last day of the short plan year,
expressed as a decimal fraction of 1.0 with two digits to the right of
the decimal point).
(d) Restrictions on alternative calculation method for large plans.
(1) The alternative calculation method described in paragraph (c) of
this section may be used for a plan with 500 or more participants as of
the last day of the plan year preceding the premium payment year only
if--
(i) No significant event, as described in paragraph (d)(2) of this
section, has occurred between the first day and the last day of the plan
year preceding the premium payment year, and an enrolled actuary so
certifies in accordance with the Premium Payment Package; or
(ii) An enrolled actuary makes an appropriate adjustment to the
value of unfunded vested benefits to reflect the occurrence of
significant events that have occurred between those dates and certifies
to that fact in accordance with the Premium Payment Package.
(2) The significant events described in this paragraph are--
(i) An increase in the plan's actuarial costs (consisting of the
plan's normal
[[Page 764]]
cost under section 302(b)(2)(A) of ERISA and section 412(b)(2)(A) of the
Code, amortization charges under section 302(b)(2)(B) of ERISA and
section 412(b)(2)(B) of the Code, and amortization credits under section
302(b)(3)(B) of ERISA and section 412(b)(3)(B) of the Code) attributable
to a plan amendment, unless the cost increase attributable to the
amendment is less than 5 percent of the actuarial costs determined
without regard to the amendment;
(ii) The extension of coverage under the plan to a new group of
employees resulting in an increase of 5 percent or more in the plan's
liability for accrued benefits;
(iii) A plan merger, consolidation or spinoff that is not de minimis
pursuant to the regulations under section 414(l) of the Code;
(iv) The shutdown of any facility, plant, store, etc., that creates
immediate eligibility for benefits that would not otherwise be
immediately payable for participants separating from service;
(v) The offer by the plan for a temporary period to permit
participants to retire at benefit levels greater than that to which they
would otherwise be entitled;
(vi) A cost-of-living increase for retirees resulting in an increase
of 5 percent or more in the plan's liability for accrued benefits; and
(vii) Any other event or trend that results in a material increase
in the value of unfunded vested benefits.