Defined benefit plan sponsor clients undergoing distress or involuntary termination with valuation dates falling in 2016 have a new table for determining expected retirement ages for participants.
This table is needed in order to compute the value of early retirement benefits and, thus, the total value of benefits under a plan.
The Pension Benefit Guaranty Corporation (PBGC) explains that guaranteed benefits and benefit liabilities under a plan that is undergoing a distress termination must be valued in accordance with subpart B of part 4044 of the Employee Retirement Income Security Act (ERISA). Appendix D of part 4044 contains tables to be used in determining the expected early retirement ages.
Table I in appendix D (Selection of Retirement Rate Category) is used to determine whether a participant has a low, medium, or high probability of retiring early. The determination is based on the year a participant would reach “unreduced retirement age” (i.e., the earlier of the normal retirement age or the age at which an unreduced benefit is first payable) and the participant’s monthly benefit at unreduced retirement age. The table applies only to plans with valuation dates in the current year and is updated annually by the PBGC to reflect changes in the cost of living, among other things.
Plan sponsors use Tables II-A, II-B, and II-C (Expected Retirement Ages for Individuals in the Low, Medium, and High Categories respectively) to determine the expected retirement age after the probability of early retirement has been determined using Table I. This expected retirement age is used to compute the value of the early retirement benefit and, thus, the total value of benefits under the plan.
The agency issued a final rule amending appendix D to replace Table I-15 with Table I-16 in order to provide an updated correlation, appropriate for calendar year 2016, between the amount of a participant’s benefit and the probability that the participant will elect early retirement.The text of the final rule is here.