E8-30768. Allocation of Assets in Single-Employer Plans; Interest Assumptions for Valuing Benefits

AGENCY:

Pension Benefit Guaranty Corporation.

ACTION:

Final rule.

SUMMARY:

Pension Benefit Guaranty Corporation's regulation on Allocation of Assets in Single-Employer Plans prescribes interest assumptions for valuing benefits under terminating single-employer plans. This final rule amends the asset allocation regulation to adopt interest assumptions for plans with valuation dates in the first quarter of 2009. As discussed below, PBGC has published a separate final rule dealing with interest assumptions under its regulation on Benefits Payable in Terminated Single-Employer Plans for January 2009. Interest assumptions are also published on PBGC's Web site (http://www.pbgc.gov).

DATES:

Effective January 1, 2009.

FOR FURTHER INFORMATION CONTACT:

Catherine B. Klion, Manager, Regulatory and Policy Division, Legislative and Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, DC 20005, 202-326-4024. (TTY/TDD users may call the Federal relay service toll-free at 1-800-877-8339 and ask to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION:

PBGC's regulations prescribe actuarial assumptions—including interest assumptions—for valuing and paying plan benefits of terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974 (ERISA). The interest assumptions are intended to reflect current conditions in the financial and annuity markets.

These interest assumptions are found in two PBGC regulations: The regulation on Benefits Payable in Terminated Single-Employer Plans (29 CFR Part 4022) and the regulation on Allocation of Assets in Single-Employer Plans (29 CFR Part 4044). PBGC normally updates the assumptions under the two regulations each month in a single rulemaking document. Because of delays in obtaining data used in setting the assumptions for January 2009, PBGC is publishing two rulemaking documents to update the two regulations. This document is a final rule updating the asset allocation regulation for January through March 2009.

The interest assumptions prescribed under the asset allocation regulation (found in Appendix B to Part 4044) are used for the valuation of benefits for allocation purposes under ERISA section 4044, and for other purposes. When used in conjunction with the mortality tables specified in Appendix A to Part 4044, these interest assumptions are intended to produce benefit values that match as closely as possible the prices charged by insurers in the private-sector group annuity market to annuitize comparable benefits. See 70 FR 72205 (December 2, 2005) (preamble to final rule adopting more current mortality tables); 58 FR 5128 (January 19, 1993) (preamble to proposed rule amending PBGC's valuation regulations).

As explained in the preamble to the 2005 amendment (at 70 FR 72205), PBGC determines prices in the private-sector group annuity market based on quarterly surveys of insurers conducted for PBGC by the American Council of Life Insurers (ACLI). Using those surveys, PBGC derives interest factors that, when combined with PBGC's mortality assumptions, provide the best fit for the average market prices obtained from the ACLI surveys.

PBGC's practice has been to recalibrate its interest factors each January based on the two most recent ACLI surveys and subsequent changes in the yield on long-term corporate investment-grade bonds. Between the annual recalibrations, PBGC has used this corporate bond market data to make monthly adjustments to the interest factors.

The recent turmoil in the financial markets has prompted PBGC to further examine its current practice. Based on an examination of historical data, PBGC has concluded that (1) increasing the frequency of the recalibrations from annually to quarterly and (2) basing the interest factors on the ACLI surveys alone can be expected to provide a better fit for average group annuity market prices than current practice.

The recalibration reflected in this rule and future quarterly recalibrations will be based on an averaging of the prices from the two most recent ACLI surveys. The interest factors so determined will remain in effect for three months—in this rule, from January through March of 2009.

Accordingly, this amendment adds to Appendix B to Part 4044 the interest assumptions for valuing benefits for allocation purposes in plans with valuation dates during January, February, and March 2009. The interest assumptions that PBGC will use for these purposes (set forth in Appendix B to part 4044) will be 6.02 percent for the first 20 years following the valuation date and 5.48 percent thereafter. These interest assumptions represent a decrease (from those in effect for December 2008) of 1.90 percent for the first 20 years following the valuation date and 1.51 percent for all years thereafter.

PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect current market conditions as accurately as possible.

Because of the need to provide immediate guidance for the valuation of benefits in plans with valuation dates during January 2009, PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

PBGC has determined that this action 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 amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).

List of Subjects in 29 CFR Part 4044

• Employee benefit plans
• Pension insurance
• Pensions

In consideration of the foregoing, 29 CFR part 4044 is amended as follows:

PART 4044—ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS

1. The authority citation for part 4044 continues to read as follows:

Authority: 29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.

2. In appendix B to part 4044, new entries for January, February, and March 2009, as set forth below, are added to the table.

Appendix B to Part 4044—Interest Rates Used to Value Benefits

* * * * *

For valuation dates occurring in the month—	The values of it are:
	it	for t =	it	for t =	it	for t =
*         *         *         *         *         *         *
January 2009	0.0602	1-20	0.548	>20	(1)	(1)
February 2009	0.0602	1-20	0.548	>20	(1)	(1)
March 2009	0.0602	1-20	0.548	>20	(1)	(1)
1 Not applicable.

Issued in Washington, DC, on this 19th day of December 2008.

Vincent K. Snowbarger,

Deputy Director for Operations, Pension Benefit Guaranty Corporation