[Federal Register Volume 65, Number 53 (Friday, March 17, 2000)]
[Rules and Regulations]
[Pages 14753-14757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6647]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR PART 4022

RIN 1212-AA92


Lump Sum Payment Assumptions

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The PBGC intends to continue to calculate and publish lump sum 
interest rates determined using the PBGC's current methods (or a 
surrogate for those rates) indefinitely. For the time being, the PBGC 
will continue to use

[[Page 14754]]

these historic rates for determining and paying de minimis lump sums. 
However, because many private-sector plans calculate lump-sum benefits 
using PBGC rates, and the PBGC wants to preserve the option of changing 
the way it sets the rates it uses for its own payments without 
affecting those private-sector calculations, the PBGC will publish two 
separate sets of lump sum rates--one for PBGC payments and one for 
private-sector payments. Initially, the two sets of rates will be 
identical; therefore, the change is nonsubstantive.
    Sometime in the future, the PBGC, through a separate rulemaking, 
might change the way it sets the lump sum interest rates it uses for 
its own payments. If that occurs, the PBGC would continue to publish 
the historic rates (or a surrogate) to be used by the private sector. 
The PBGC cautions pension practitioners to exercise care when drafting 
or amending documents that refer to the lump sum interest rates used by 
the PBGC.
    The Internal Revenue Service has informed the PBGC that a plan that 
refers to PBGC lump sum interest rates for purposes of calculating the 
amount of a distribution subject to Internal Revenue Code section 
417(e)(3) and that is amended before the PBGC amends its regulations to 
provide lump sum interest rates for PBGC payments that are no longer 
identical to the lump sum interest rates for private-sector payments 
will not fail to satisfy the ``anti-cutback'' rules of Internal Revenue 
Code section 411(d)(6) merely because it is amended to clarify that the 
plan's reference to PBGC lump sum interest rates means the lump sum 
interest rates for private-sector payments.

EFFECTIVE DATE: May 1, 2000.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General 
Counsel, or James L. Beller, Attorney, Pension Benefit Guaranty 
Corporation, Office of the General Counsel, Suite 340, 1200 K Street, 
NW., Washington, DC 20005-4026, 202-326-4024. (For TTY/TTD users, call 
the Federal relay service toll-free at 1-800-877-8339 and ask to be 
connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION:

Background

    Each month, the PBGC publishes the interest rates it uses to 
determine whether the PBGC will pay a pension benefit in the form of a 
lump sum and, if so, the amount the PBGC will pay. Private-sector plans 
and annuity providers historically have relied upon the PBGC lump sum 
interest rates, along with appropriate mortality assumptions, to 
determine the minimum amount of a participant's lump sum benefit for 
purposes of Internal Revenue Code (Code) section 417(e)(3) and ERISA 
section 205(g)(3). While the law no longer requires private plans to 
use the PBGC lump sum interest rates, some plans continue to use them 
for the transition period permitted under the Code and ERISA, and some 
plans will choose to continue to use them indefinitely where they 
produce a larger distribution than the minimum benefit amount required 
by Code section 417(e)(3) and ERISA section 205(g)(3). In addition, 
many existing annuity contracts provide benefits calculated using the 
PBGC lump sum interest rates.

October 1998 Notice of Intent To Propose Rulemaking

    In a notice of intent to propose rulemaking (63 FR 57228 (October 
26, 1998)), the PBGC announced that it was considering (1) 
discontinuing use of its existing lump sum assumptions for payment 
purposes and replacing them with a modified version of its existing 
annuity assumptions, effective sometime after December 2000, and (2) 
discontinuing calculation and publication of its existing lump sum 
interest rates at, or sometime after, the time the PBGC discontinues 
their use.
    None of the commenters objected to the PBGC's changing the way it 
sets the interest rates it uses to pay lump sums for its own purposes. 
However, all of the commenters asked the PBGC either to continue to 
calculate and publish its lump sum interest rates determined using the 
PBGC's current methods or to provide a surrogate rate. Many plan 
sponsors and plan participants stated that their plans would continue 
to refer to PBGC rates, noting that the plan's participants have come 
to rely upon those rates and the larger lump sum amounts they produce. 
Commenters also noted that the private sector uses the PBGC rates in 
other contexts, including insurance contracts purchased to satisfy plan 
liabilities. Some commenters felt that the PBGC should update the 
mortality assumptions it uses to derive its lump sum interest rates.

Separation of PBGC Rates and Private-sector Rates

    For the time being, the PBGC has decided that it will not make any 
change in the way it sets the lump sum interest rates it uses for its 
own payments. However, because those rates have been derived from a 
mortality table that is becoming increasingly outdated, the PBGC would 
like to preserve the option to do so in the future.
    The PBGC is concerned that any future change might create confusion 
and difficulties for plans that continue to refer to the PBGC lump sum 
interest rates. Accordingly, the PBGC is eliminating the linkage 
between the lump sum interest rates it uses to pay benefits and the 
PBGC rates the private sector relies upon. In order to eliminate this 
linkage, the PBGC will publish separate tables of lump sum interest 
rates for these distinct purposes--one table called ``Lump Sum Rates 
for PBGC Payments'' and another table called ``Lump Sum Rates for 
Private-Sector Payments.'' By publishing two sets of lump sum rates, 
the PBGC could change the way it sets the rates it uses for its own 
payments without affecting the rates used by the private sector. 
Because the PBGC is not at this time changing the way it sets the lump 
sum interest rates it uses for its own payments, the two sets of rates 
will initially be identical.
    The PBGC will continue to publish its lump sum interest rates (in 
both the PBGC table and the private-sector table) for a given month on 
the 15th of the previous month (or, if the 15th falls on a weekend or 
holiday, the preceding regular workday), or as close to that date as 
circumstances permit.

Surrogate Rate

    The PBGC is exploring whether there is a reasonable surrogate 
(e.g., some percentage of the average yield on 30-year Treasury 
securities) for its historic rates. If such a surrogate exists, the 
PBGC might replace the historic rates with the surrogate pursuant to a 
separate rulemaking. The PBGC would not make such a change unless the 
Internal Revenue Service concludes that the use of the surrogate in 
lieu of the historic rates would not cause a plan to fail to satisfy 
the ``anti-cutback'' rules of Code section 411(d)(6).

Mortality Assumptions for Setting Interest Rates for Private-Sector 
Payments

    The PBGC does not intend to update the mortality assumptions it 
uses to set its lump sum interest rates for private-sector payments; 
doing so would increase those interest rates and thereby reduce 
private-sector lump sums. This would be inconsistent with the desire of 
various commenters (including several who suggested the PBGC update its 
mortality assumptions) that the PBGC continue publishing its historical 
rates (or provide a substitute for those rates) because participants 
have come to rely upon the larger lump sum amounts these rates produce.

[[Page 14755]]

Possible Future Changes to Lump Sum Rates Used by the PBGC

    If the PBGC in the future changes the way it sets lump sum rates 
for its own payments, a number of interpretation and drafting issues 
might arise for private sector payments. Because there is potential for 
confusion and misinterpretation, the PBGC cautions pension 
practitioners to exercise care when drafting or amending documents that 
refer to the PBGC lump sum interest rates. In particular, plan 
practitioners should avoid referring to the ``PBGC lump sum rates'' or 
the rates the PBGC ``uses.'' If they wish to refer to the PBGC's 
historical lump sum rates, they should refer to the PBGC's lump sum 
interest rates for private-sector payments. This reference would be to 
the PBGC's historical rates or a surrogate for those rates and 
therefore would be unaffected by any change the PBGC might make to the 
method it uses to determine the rates for its own lump sum payments. 
Alternatively, plan practitioners may refer to the PBGC's lump sum 
interest rates for PBGC payments. This reference would be to the rates 
the PBGC uses for its own lump sum payments and therefore could result 
in unexpected changes in plan lump sum amounts if the PBGC changes the 
way it sets rates for its own payments.

Anti-Cutback Issues Under Code Section 411(d)(6)

    The Internal Revenue Service has informed the PBGC that a plan that 
refers to PBGC lump sum interest rates for purposes of calculating the 
amount of the distribution subject to Code section 417(e)(3) and that 
is amended before the PBGC amends its regulations to provide lump sum 
interest rates for PBGC payments that are no longer identical to the 
lump sum interest rates for private-sector payments will not fail to 
satisfy the ``anti-cutback'' rules of Code section 411(d)(6) merely 
because it is amended to clarify that the plan's reference to PBGC lump 
sum interest rates means the lump sum interest rates for private-sector 
payments. The Internal Revenue Service has not yet determined whether 
other amendments relating to PBGC lump sum interest rates would cause 
the plan to fail to satisfy the ``anti-cutback'' rules of Code section 
411(d)(6).

Compliance With Rulemaking Guidelines

    The PBGC has determined that there is good cause for dispensing 
with notice and comment rulemaking as unnecessary. 5 U.S.C. 553(b). 
This rule provides that instead of publishing one set of monthly lump 
sum interest rates, the PBGC will publish two sets--one for PBGC 
payments and one for private-sector payments. This is a nonsubstantive 
change because the two sets of rates will be identical until the PBGC, 
through rulemaking, provides otherwise.
    The PBGC has determined that this rule is not a ``significant 
regulatory action'' under the criteria set forth in Executive Order 
12866.
    Because no general notice of proposed rulemaking is required for 
this rulemaking, the Regulatory Flexibility Act does not apply (5 
U.S.C. 601(2)).

List of Subjects in 29 CFR Part 4022

    Employee benefit plans, Pension insurance, Pensions, Reporting and 
recordkeeping requirements.

    For the reasons set forth above, the PBGC amends part 4022 of 29 
CFR chapter XL (as amended by the PBGC's final rule published elsewhere 
in today's Federal Register) as follows:

PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS

    1. The authority citation for part 4022 continues to read as 
follows:

    Authority: 29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.


    2. In Sec. 4022.7, a new paragraph (e) is added to read as follows:


Sec. 4022.7  Benefits payable in a single installment.

* * * * *
    (e) Publication of lump sum rates. The PBGC will provide two sets 
of lump sum interest rates as follows--
    (1) In appendix B to this part, the lump sum interest rates for 
PBGC payments, as provided under paragraph (d)(2) of this section; and
    (2) In appendix C to this part, the lump sum interest rates for 
private-sector payments.

Appendix B to Part 4022

    3. In newly redesignated Appendix B to part 4022, the appendix 
heading is revised to read as follows:

Appendix B to Part 4022--Lump Sum Interest Rates for PBGC Payments

Appendix C to Part 4022 [Redesignated as Appendix D to Part 4022]

    4. Newly redesignated Appendix C to part 4022 is further 
redesignated as Appendix D to part 4022, and a new Appendix C is added 
to part 4022 to read as follows:

Appendix C to Part 4022--Lump Sum Interest Rates for Private-Sector 
Payments

[In using this table: (1) For benefits for which the participant or 
beneficiary is entitled to be in pay status on the valuation date, the 
immediate annuity rate shall apply; (2) For benefits for which the 
deferral period is y years (where y is an integer and 0  y  
n1), interest rate i1 shall apply from the 
valuation date for a period of y years, and thereafter the immediate 
annuity rate shall apply; (3) For benefits for which the deferral 
period is y years (where y is an integer and n1  y 
 n1 + n2), interest rate i2 
shall apply from the valuation date for a period of y - n1 
years, interest rate i1 shall apply for the following 
n1 years, and thereafter the immediate annuity rate shall 
apply; (4) For benefits for which the deferral period is y years (where 
y is an integer and y > n1 + n2), interest rate 
i3 shall apply from the valuation date for a period of 
y-n1-n2 years, interest rate i2 shall 
apply for the following n2 years, interest rate i1 
shall apply for the following n1 years, and thereafter the 
immediate annuity rate shall apply.]

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                                                      For plans with a valuation   Immediate                 Deferred annuities (percent)
                                                                 date               annuity  -----------------------------------------------------------
                      Rate set                       ----------------------------    rate
                                                       On or after     Before      (percent)      i1          i2          i3          n1          n2
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1...................................................       11-1-93       12-1-93        4.25        4.00        4.00        4.00           7           8
2...................................................       12-1-93        1-1-94        4.25        4.00        4.00        4.00           7           8
3...................................................        1-1-94        2-1-94        4.50        4.00        4.00        4.00           7           8
4...................................................        2-1-94        3-1-94        4.50        4.00        4.00        4.00           7           8
5...................................................        3-1-94        4-1-94        4.50        4.00        4.00        4.00           7           8
6...................................................        4-1-94        5-1-94        4.75        4.00        4.00        4.00           7           8
7...................................................        5-1-94        6-1-94        5.25        4.50        4.00        4.00           7           8
8...................................................        6-1-94        7-1-94        5.25        4.50        4.00        4.00           7           8
9...................................................        7-1-94        8-1-94        5.50        4.75        4.00        4.00           7           8
10..................................................        8-1-94        9-1-94        5.75        5.00        4.00        4.00           7           8

[[Page 14756]]

 
11..................................................        9-1-94       10-1-94        5.50        4.75        4.00        4.00           7           8
12..................................................       10-1-94       11-1-94        5.50        4.75        4.00        4.00           7           8
13..................................................       11-1-94       12-1-94        6.00        5.25        4.00        4.00           7           8
14..................................................       12-1-94        1-1-95        6.25        5.50        4.25        4.00           7           8
15..................................................        1-1-95        2-1-95        6.00        5.25        4.00        4.00           7           8
16..................................................        2-1-95        3-1-95        6.00        5.25        4.00        4.00           7           8
17..................................................        3-1-95        4-1-95        6.00        5.25        4.00        4.00           7           8
18..................................................        4-1-95        5-1-95        5.75        5.00        4.00        4.00           7           8
19..................................................        5-1-95        6-1-95        5.50        4.75        4.00        4.00           7           8
20..................................................        6-1-95        7-1-95        5.50        4.75        4.00        4.00           7           8
21..................................................        7-1-95        8-1-95        4.75        4.00        4.00        4.00           7           8
22..................................................        8-1-95        9-1-95        4.75        4.00        4.00        4.00           7           8
23..................................................        9-1-95       10-1-95        5.00        4.25        4.00        4.00           7           8
24..................................................       10-1-95       11-1-95        4.75        4.00        4.00        4.00           7           8
25..................................................       11-1-95       12-1-95        4.75        4.00        4.00        4.00           7           8
26..................................................       12-1-95        1-1-96        4.50        4.00        4.00        4.00           7           8
27..................................................        1-1-96        2-1-96        4.50        4.00        4.00        4.00           7           8
28..................................................        2-1-96        3-1-96        4.25        4.00        4.00        4.00           7           8
29..................................................        3-1-96        4-1-96        4.25        4.00        4.00        4.00           7           8
30..................................................        4-1-96        5-1-96        4.75        4.00        4.00        4.00           7           8
31..................................................        5-1-96        6-1-96        5.00        4.25        4.00        4.00           7           8
32..................................................        6-1-96        7-1-96        5.00        4.25        4.00        4.00           7           8
33..................................................        7-1-96        8-1-96        5.00        4.25        4.00        4.00           7           8
34..................................................        8-1-96        9-1-96        5.25        4.50        4.00        4.00           7           8
35..................................................        9-1-96       10-1-96        5.25        4.50        4.00        4.00           7           8
36..................................................       10-1-96       11-1-96        5.25        4.50        4.00        4.00           7           8
37..................................................       11-1-96       12-1-96        5.00        4.25        4.00        4.00           7           8
38..................................................       12-1-96        1-1-97        4.75        4.00        4.00        4.00           7           8
39..................................................        1-1-97        2-1-97        4.50        4.00        4.00        4.00           7           8
40..................................................        2-1-97        3-1-97        4.75        4.00        4.00        4.00           7           8
41..................................................        3-1-97        4-1-97        5.00        4.25        4.00        4.00           7           8
42..................................................        4-1-97        5-1-97        4.75        4.00        4.00        4.00           7           8
43..................................................        5-1-97        6-1-97        5.00        4.25        4.00        4.00           7           8
44..................................................        6-1-97        7-1-97        5.25        4.50        4.00        4.00           7           8
45..................................................        7-1-97        8-1-97        5.25        4.50        4.00        4.00           7           8
46..................................................        8-1-97        9-1-97        4.75        4.00        4.00        4.00           7           8
47..................................................        9-1-97       10-1-97        4.50        4.00        4.00        4.00           7           8
48..................................................       10-1-97       11-1-97        4.75        4.00        4.00        4.00           7           8
49..................................................       11-1-97       12-1-97        4.50        4.00        4.00        4.00           7           8
50..................................................       12-1-97        1-1-98        4.50        4.00        4.00        4.00           7           8
51..................................................        1-1-98        2-1-98        4.25        4.00        4.00        4.00           7           8
52..................................................        2-1-98        3-1-98        4.25        4.00        4.00        4.00           7           8
53..................................................        3-1-98        4-1-98        4.25        4.00        4.00        4.00           7           8
54..................................................        4-1-98        5-1-98        4.25        4.00        4.00        4.00           7           8
55..................................................        5-1-98        6-1-98        4.25        4.00        4.00        4.00           7           8
56..................................................        6-1-98        7-1-98        4.25        4.00        4.00        4.00           7           8
57..................................................        7-1-98        8-1-98        4.00        4.00        4.00        4.00           7           8
58..................................................        8-1-98        9-1-98        4.00        4.00        4.00        4.00           7           8
59..................................................        9-1-98       10-1-98        4.00        4.00        4.00        4.00           7           8
60..................................................       10-1-98       11-1-98        4.00        4.00        4.00        4.00           7           8
61..................................................       11-1-98       12-1-98        3.75        4.00        4.00        4.00           7           8
62..................................................       12-1-98        1-1-99        4.00        4.00        4.00        4.00           7           8
63..................................................        1-1-99        2-1-99        4.00        4.00        4.00        4.00           7           8
64..................................................        2-1-99        3-1-99        4.00        4.00        4.00        4.00           7           8
65..................................................        3-1-99        4-1-99        4.00        4.00        4.00        4.00           7           8
66..................................................        4-1-99        5-1-99        4.25        4.00        4.00        4.00           7           8
67..................................................        5-1-99        6-1-99        4.25        4.00        4.00        4.00           7           8
68..................................................        6-1-99        7-1-99        4.25        4.00        4.00        4.00           7           8
69..................................................        7-1-99        8-1-99        4.50        4.00        4.00        4.00           7           8
70..................................................        8-1-99        9-1-99        5.00        4.25        4.00        4.00           7           8
71..................................................        9-1-99       10-1-99        5.00        4.25        4.00        4.00           7           8
72..................................................       10-1-99       11-1-99        5.00        4.25        4.00        4.00           7           8
73..................................................       11-1-99       12-1-99        5.00        4.25        4.00        4.00           7           8
74..................................................       12-1-99        1-1-00        5.25        4.50        4.00        4.00           7           8
75..................................................        1-1-00        2-1-00        5.00        4.25        4.00        4.00           7           8
76..................................................        2-1-00        3-1-00        5.25        4.50        4.00        4.00           7           8
77..................................................        3-1-00        4-1-00        5.25        4.50        4.00        4.00           7           8
78..................................................        4-1-00        5-1-00        5.25        4.50        4.00        4.00           7           8
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[[Page 14757]]


    Issued in Washington, DC, this 9th day of March, 2000.
Alexis M. Herman,
Chairman, Board of Directors, Pension Benefit Guaranty Corporation.

    Issued on the date set forth above pursuant to a resolution of 
the Board of Directors authorizing its Chairman to issue this final 
rule.
James J. Keightley,
Secretary, Board of Directors, Pension Benefit Guaranty Corporation.
[FR Doc. 00-6647 Filed 3-16-00; 8:45 am]
BILLING CODE 7708-01-P