E6-21280. Mortality Assumptions

AGENCY:

Pension Benefit Guaranty Corporation.

ACTION:

Direct final rule.

SUMMARY:

This document makes changes to the mortality assumptions under parts 4050 (Missing Participants) and 4281 (Duties of Plan Sponsor Following Mass Withdrawal) of PBGC's regulations. In a final rule published in the Federal Register on December 2, 2005, PBGC amended part 4044 (Allocation of Assets in Single-employer Plans) of its regulations to update mortality tables used for certain valuations for single-employer plans. Because of the dependence of certain valuations under part 4050 on part 4044, amendments updating the mortality assumptions under part 4050 are needed. This rule also makes a minor conforming amendment to the mortality assumptions in part 4281.

DATES:

Effective February 27, 2007, without further notice, unless PBGC receives significant adverse comment by January 16, 2007. For a discussion of applicability of this rule, see SUPPLEMENTARY INFORMATION.

ADDRESSES:

Comments, identified by RIN number 1212-AB08, may be submitted by any of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the Web site instructions for submitting comments.
• E-mail: [e-mail].
• Fax: [phone].
• Mail or Hand Delivery: Legislative and Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, DC 20005-4026.

All submissions must include the Regulatory Information Number for this rulemaking (RIN number 1212-AB08). Comments received, including personal information provided, will be posted to www.pbgc.gov. Copies of comments may also be obtained by writing to Disclosure Division, Office of the General Counsel, Pension Benefit Guaranty Corp., 1200 K Street, NW., Washington, DC 20005-4026 or calling 202-326-4040 during normal business hours. (TTY and TDD users may call the Federal relay service toll-free at 1-800-877-8339 and ask to be connected to 202-326-4040.)

FOR FURTHER INFORMATION CONTACT:

Catherine B. Klion, Manager, or James L. Beller, Jr., Attorney, Regulatory and Policy Division, Legislative and Regulatory Department, Pension Benefit Guaranty Corp., 1200 K Street, NW., Suite 1200, Washington, DC 20005-4026; 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 is publishing this rule without prior proposal because we view it as a non-controversial amendment and expect no significant adverse comment. The rule is expected to have minimal economic impact on plans and participants. Unless we receive significant adverse comment by January 16, 2007, this rule will be effective on February 27, 2007 without further notice.

For the reasons stated herein, PBGC for good cause finds that prior proposal and opportunity for public comment are unnecessary. However, in the “Proposed Rules” section of today's Federal Register, we are publishing a separate document that will serve as a notice of proposal to amend parts 4050 and 4281 as described in this direct final rule in case we receive significant adverse comment. If that happens, PBGC will publish, in a timely manner, a document in the Rules category of the Federal Register withdrawing the direct final rule. We will then address public comments in a subsequent final rule based on the proposed rule. We will not institute a second comment period on this rule. Any parties interested in commenting must do so at this time.

Part 4050—Missing Participants

Under part 4050 (Missing Participants), a plan terminating in a standard termination (or a sufficient distress termination) may pay a “designated benefit” to PBGC on behalf of a missing participant. For participants with non-de minimis benefits, the designated benefit is equal to or based on the participant's most valuable annuity benefit determined using the “missing participant annuity assumptions” as defined in § 4050.2.

The term “missing participant annuity assumptions” is defined with reference to valuation assumptions under part 4044 (Allocation of Assets in Single-Employer Plans), including part 4044 interest assumptions, but the use of a different mortality table is required (i.e., a unisex rather than a sex-distinct mortality table). For this purpose, the current regulation specifies the use of the mortality table prescribed by the Internal Revenue Service under Revenue Ruling 95-6 (the “95-6 Mortality Table”).

On December 2, 2005, at 70 FR 72205, PBGC published a final rule modifying part 4044 of its regulations to update the mortality tables in Appendix A. PBGC uses these updated mortality tables to derive the interest factors it prescribes under part 4044. In deriving these interest factors, PBGC attempts to match market annuity prices. The new mortality tables result in interest factors that are higher than they would have been using the old tables.

Before the part 4044 mortality tables were updated, the 95-6 Mortality Table reasonably approximated a unisex blend of the part 4044 healthy-life mortality tables and, when combined with the part 4044 interest factors (as is required under part 4050), produced values that reasonably matched the market prices of annuities. However, the 95-6 Mortality Table no longer approximates a unisex blend of the part 4044 mortality tables and, when combined with the part 4044 interest factors, will tend to produce values that are lower than market annuity prices.

Therefore, PBGC is amending part 4050 to update the mortality rates used to value annuity benefits. The updated rates will be a fixed blend of 50 percent of the healthy male mortality rates under part 4044 and 50 percent of the healthy female mortality rates under part 4044.

This amendment is applicable to plans terminating on or after the effective date of this amendment.

In addition, PBGC is correcting the cross-reference in paragraph (4) of the definition of “missing participant annuity assumptions.” The current reference to § 4044.52(e) should be to § 4044.52(d).

Part 4281—Duties of Plan Sponsor Following Mass Withdrawal

PBGC is amending § 4281.14 by adding a new paragraph (f), which provides that, for valuing deferred annuities, the mortality of the contingent annuitant during the deferral period is disregarded. This is because a contingent annuitant who dies during the deferral period may be replaced with a different contingent annuitant. This amendment conforms to the assumptions used for single-employer plans. This amendment is applicable to valuations with valuation dates on or after the effective date of this rule.

On July 12, 2006, at 71 FR 39205, PBGC published a Technical Amendment to part 4281 making conforming changes to paragraphs (c), (d), and (e) of § 4281.14 that were inadvertently omitted from the final rule amending part 4044, published on December 2, 2005, at 70 FR 72205. PBGC is restating § 4281.14 in its entirety to incorporate those technical amendments into this rulemaking.

Compliance With Rulemaking Guidelines

PBGC has determined, in consultation with the Office of Management and Budget, that this rule is a not a “significant regulatory action” under Executive Order 12866, and, therefore, is not subject to OMB review.

PBGC certifies under section 605(b) of the Regulatory Flexibility Act that this rule will not have a significant economic impact on a substantial number of small entities. The economic impact on a particular plan of these amendments is expected to be minimal. The adjustment for each benefit valuation will generally be small. In addition, the change to part 4050 will affect only a small number of participants (i.e., missing participants). The change to 4281 also will affect only a small number of participants (i.e., deferred annuitants in multiemployer plans experiencing mass withdrawal). Therefore, this rule is not expected to have a significant economic impact on a substantial number of entities of any size. Accordingly, sections 603 and 604 of the Regulatory Flexibility Act do not apply.

List of Subjects for 29 CFR Parts 4050 and 4281

• Employee benefit plans
• Pension insurance
• Reporting and recordkeeping requirements

For the reasons set forth above, PBGC amends parts 4050 and 4281 of 29 CFR chapter XL as follows:

PART 4050—MISSING PARTICIPANTS

1. The authority citation for part 4050 continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1350.

2. Amend § 4050.2, by revising paragraphs (2) and (4) of the definition of Missing participant annuity assumptions to read as follows:

§ 4050.2

Definitions.

* * * * *

Missing participant annuity assumptions means the interest rate assumptions and actuarial methods for valuing benefits under § 4044.52 of this chapter, applied—

(1) * * *

(2) Using mortality rates that are a fixed blend of 50 percent of the healthy male mortality rates in § 4044.53(c)(1) of this chapter and 50 percent of the healthy female mortality rates in § 4044.53(c)(2) of this chapter;

(3) * * *

(4) Without making the adjustment for expenses provided for in § 4044.52(d) of this chapter; and

* * * * *

PART 4281—DUTIES OF PLAN SPONSOR FOLLOWING MASS WITHDRAWAL

3. The authority citation for part 4281 continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1341a, 1399(c)(1)(D), and 1441.

4. Revise § 4281.14 to read as follows:

§ 4281.14

Mortality assumptions.

(a) General rule. Subject to paragraph (b) of this section (regarding certain death benefits), the plan administrator shall use the mortality factors prescribed in paragraphs (c), (d), (e), and (f) of this section to value benefits under § 4281.13.

(b) Certain death benefits. If an annuity for one person is in pay status on the valuation date, and if the payment of a death benefit after the valuation date to another person, who need not be identifiable on the valuation date, depends in whole or in part on the death of the pay status annuitant, then the plan administrator shall value the death benefit using—

(1) The mortality rates that are applicable to the annuity in pay status under this section to represent the mortality of the pay status annuitant; and

(2) The mortality rates applicable to annuities not in pay status and to deferred benefits other than annuities, under paragraph (c) of this section, to represent the mortality of the death beneficiary.

(c) Mortality rates for healthy lives. The mortality rates applicable to annuities in pay status on the valuation date that are not being received as disability benefits, to annuities not in pay status on the valuation date, and to deferred benefits other than annuities, are,—

(1) For male participants, the rates in Table 1 of Appendix A to part 4044 of this chapter projected from 1994 to the calendar year in which the valuation date occurs plus 10 years using Scale AA from Table 2 of Appendix A to part 4044 of this chapter; and

(2) For female participants, the rates in Table 3 of Appendix A to part 4044 of this chapter projected from 1994 to the calendar year in which the valuation date occurs plus 10 years using Scale AA from Table 4 of Appendix A to part 4044 of this chapter.

(d) Mortality rates for disabled lives (other than Social Security disability). The mortality rates applicable to annuities in pay status on the valuation date that are being received as disability benefits and for which neither eligibility for, nor receipt of, Social Security disability benefits is a prerequisite, are,—

(1) For male participants, the lesser of—

(i) The rate determined from Table 1 of Appendix A to part 4044 of this chapter projected from 1994 to the calendar year in which the valuation date occurs plus 10 years using Scale AA from Table 2 of Appendix A to part 4044 of this chapter and setting the resulting table forward three years, or

(ii) The rate in Table 5 of Appendix A to part 4044 of this chapter.

(2) For female participants, the lesser of—

(i) The rate determined from Table 3 of Appendix A to part 4044 of this chapter projected from 1994 to the calendar year in which the valuation date occurs plus 10 years using Scale AA from Table 4 of Appendix A to part 4044 of this chapter and setting the resulting table forward three years, or

(ii) The rate in Table 6 of Appendix A to part 4044 of this chapter.

(e) Mortality rates for disabled lives (Social Security disability). The mortality rates applicable to annuities in pay status on the valuation date that are being received as disability benefits and for which either eligibility for, or receipt of, Social Security disability benefits is a prerequisite, are—

(1) For male participants, the rates in Table 5 of Appendix A to part 4044 of this chapter; and

(2) For female participants, the rates in Table 6 of Appendix A to part 4044 of this chapter.

(f) Contingent annuitant mortality during deferral period. If a participant's joint and survivor benefit is valued as a deferred annuity, the mortality of the contingent annuitant during the deferral period will be disregarded.

Issued in Washington, DC, this 8th day of December, 2006.

Elaine L. Chao,

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.

Judith R. Starr,

Secretary, Board of Directors, Pension Benefit Guaranty Corporation.