PBGC finalizes rule on asset valuation and benefit payments

Change to asset valuation methodology
Limited impact on plan sponsors
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.
Other administrative changes
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.
Related resources
Non-Mercer resource
- Final regulations, Benefit payments and allocation of assets (Federal Register, July 11, 2023)
Mercer Law & Policy resource
- PBGC proposal may affect asset valuation methodology (Oct. 7, 2019)
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