PBGC finalizes rule on asset valuation and benefit payments 

July 13, 2023

The Pension Benefit Guaranty Corp. (PBGC) has finalized regulations on valuing assets and paying benefits in terminating single-employer defined benefit pension (DB) plans. The final rule — which is largely unchanged from the proposal — primarily codifies PBGC’s own procedures for paying benefits from trusteed plans. The rule shouldn’t directly affect ongoing plans, but some sponsors with hard-to-value plan assets may need to adjust their asset valuation methods in certain circumstances. The final rule takes effect Aug. 10.

PBGC allocates a terminating plan’s assets among participants’ benefits using the methodology set forth in ERISA Section 4044 (29 USC § 1344). The new regulation modifies the Section 4044 methodology to formalize PBGC’s approach to valuing assets without a readily ascertainable fair market value, such as hedge funds, private equity funds and other hard-to-value assets. In these instances, PBGC uses a fair value methodology consistent with US generally accepted accounting principles (US GAAP). The rule makes similar changes to the regulations under Section 4062 (29 USC § 1362), which PBGC uses to determine a sponsor’s net worth when calculating the sponsor’s termination liability.

DB plan sponsors use the Section 4044 methodology to allocate assets on a plan termination basis (i.e., as if the plan were terminating) in several contexts, including the following:

• Plan mergers, consolidations and spinoffs. These transactions cannot result in a reduction of participants’ benefits on a termination basis.
• Reportable event waivers. Waivers for certain otherwise reportable transactions are available to employers whose plans are fully funded on a termination basis.
• Partial plan terminations. Affected participants’ nonvested benefits must vest to the extent funded on a termination basis.

For most DB plans, the new rule won’t have any impact. But sponsors of plans holding hard-to-value assets may need to start using US GAAP fair value methodology for Section 4044 allocations.

In addition to codifying PBGC’s asset valuation methodology, the rule clarifies PBGC’s administrative practices with respect to payment of lump sums, death benefits and mandatory employee contributions. The rule also confirms that forms of payment for benefits in pay status may not be changed after a plan becomes trusteed. None of these changes should have any impact on plan sponsors.

The final rule omits two proposed changes to the treatment of partial lump sums paid before plan termination. PBGC is reviewing those provisions in light of comments received on the proposal.

• Final regulations, Benefit payments and allocation of assets (Federal Register, July 11, 2023)

• PBGC proposal may affect asset valuation methodology (Oct. 7, 2019)