Lump Sum Payment Assumptions, 55587-55592 [2020-19610]
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55587
Rules and Regulations
Federal Register
Vol. 85, No. 175
Wednesday, September 9, 2020
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
Dated: August 31, 2020.
Lauren K. Roth,
Associate Commissioner for Policy.
21 CFR Part 101
[Docket No. FDA–2014–N–1021]
[FR Doc. 2020–19569 Filed 9–4–20; 4:15 pm]
RIN 0910–AH00
BILLING CODE 4164–01–P
Food Labeling; Gluten-Free Labeling of
Fermented or Hydrolyzed Foods;
Correction
AGENCY:
Food and Drug Administration,
HHS.
ACTION:
The Food and Drug
Administration (FDA or we) is
correcting a final rule that published in
the Federal Register of August 13, 2020.
The final rule establishes requirements
concerning ‘‘gluten-free’’ labeling for
foods that are fermented or hydrolyzed
or that contain fermented or hydrolyzed
ingredients.
DATES: Effective October 13, 2020.
FOR FURTHER INFORMATION CONTACT:
Carol D’Lima, Center for Food Safety
and Applied Nutrition (HFS–820), Food
and Drug Administration, 5001 Campus
Dr., College Park, MD 20740, 240–402–
2371, Carol.Dlima@fda.hhs.gov.
SUPPLEMENTARY INFORMATION: In the
Federal Register of Thursday, August
13, 2020, (85 FR 49240), FDA published
the final rule ‘‘Food Labeling; GlutenFree Labeling of Fermented or
Hydrolyzed Foods’’ with a
typographical error in the SUMMARY
section. In addition, the rule was
published with two different effective
dates.
In FR Doc. 2020–17088, appearing in
the Federal Register of Thursday,
August 13, 2020, the following
corrections are made:
On page 49241, in the first column,
the second sentence is corrected to read
as follows: ‘‘These requirements are
needed to help ensure that individuals
with celiac disease are not misled and
SUMMARY:
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PENSION BENEFIT GUARANTY
CORPORATION
29 CFR Part 4022
Final rule; correction.
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receive truthful and accurate
information with respect to fermented
or hydrolyzed foods labeled as ‘glutenfree.’’’
On page 49254, in section VI.
Effective and Compliance Dates, in the
first column, the first sentence is
corrected to read as follows: ‘‘This rule
is effective October 13, 2020.’’ This
confirms the rule is effective October 13,
2020, and is consistent with the
effective date stated earlier on page
49241.
RIN 1212–AB41
Lump Sum Payment Assumptions
Pension Benefit Guaranty
Corporation.
ACTION: Final rule.
AGENCY:
This rule modifies the
assumptions the Pension Benefit
Guaranty Corporation (PBGC) uses to
determine de minimis lump sum
benefits in PBGC-trusteed terminated
single-employer defined benefit pension
plans and discontinues monthly
publication of PBGC’s lump sum
interest rate assumptions.
DATES: Effective date: This rule is
effective January 1, 2021.
Applicability date: The amendments
affecting PBGC’s calculation and
payment of lump sum benefits apply to
trusteed plans with termination dates on
or after January 1, 2021.
FOR FURTHER INFORMATION CONTACT:
Gregory M. Katz (katz.gregory@
pbgc.gov), Attorney, Regulatory Affairs
Division, Office of the General Counsel,
Pension Benefit Guaranty Corporation,
1200 K Street NW, Washington, DC
20005–4026; 202–229–3829. TTY users
may call the Federal relay service tollfree at 1–800–877–8339 and ask to be
connected to 202–229–3829.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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Executive Summary—Purpose and
Authority
This rule is intended to modernize the
methodology used to determine de
minimis lump sums in terminated
underfunded single-employer plans.
Specifically, PBGC is adopting the
interest and mortality assumptions from
section 417(e)(3) of the Internal Revenue
Code (Code) 1 for this purpose. It also
discontinues PBGC’s monthly
calculation and publication of interest
rate assumptions. Because some privatesector plans use PBGC’s lump sum
interest rates, the rule provides a table
for plans to use to determine interest
assumptions in accordance with PBGC’s
historical methodology.
Legal authority for this action comes
from section 4002(b)(3) of the Employee
Retirement Income Security Act of 1974
(ERISA), which authorizes PBGC to
issue regulations to carry out the
purposes of title IV of ERISA and
section 4022 of ERISA (Single-Employer
Plan Benefits Guaranteed).
Background
The Pension Benefit Guaranty
Corporation (PBGC) administers two
insurance programs for private-sector
defined benefit pension plans under
title IV of the Employee Retirement
Income Security Act of 1974 (ERISA): A
single-employer plan termination
insurance program and a multiemployer
plan insolvency insurance program.
This rule applies only to the singleemployer program.
PBGC has identified these
amendments as part of its ongoing
retrospective review of its regulations to
ensure that PBGC provides clear and
helpful guidance, minimizes burdens
and maximizes benefits, and addresses
ineffective and outdated rules.
Use of Lump Sum Assumptions by
PBGC
Covered single-employer plans that
are underfunded may terminate in
either a distress termination under
section 4041(c) of ERISA or in an
involuntary termination (one initiated
by PBGC) under section 4042 of ERISA.
When such a plan terminates, PBGC
typically is appointed statutory trustee
of the plan and becomes responsible for
1 Section 417(e)(3) of the Code and section
205(g)(3) of the Employee Retirement Income
Security Act of 1974 (ERISA) are parallel provisions
in ERISA and the Code.
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paying guaranteed benefits in
accordance with section 4022 of ERISA
and PBGC’s regulation on Benefits
Payable in Terminated Single-Employer
Plans (29 CFR part 4022).2
PBGC calculates the present value of
each participant’s benefit to determine
whether it is de minimis (present value
of $5,000 or less) and therefore may be
paid as a lump sum.3 Assumptions used
to value benefits for this purpose are set
forth in PBGC’s benefit payments
regulation. The interest assumption,
published each month, employs a fourtiered structure to discount future
benefit payments for determining their
lump sum equivalent. This structure
consists of an ‘‘immediate’’ rate for
discounting benefits for the period
between the annuity starting date and
each future payment date, and up to
three ‘‘deferred’’ rates for discounting
benefits during specified parts of the
period leading up to the annuity starting
date (e.g., first 7 years, next 8 years, and
years beyond). The mortality
assumption is the 1984 Unisex
Pensioners Mortality Table.
Use of PBGC’s Lump Sum Interest Rates
by Private Sector
PBGC is aware that a relatively small
number of plans use PBGC’s interest
rates as computed using its historical
methodology (legacy interest rates) to
determine the lump sum equivalents of
annuity benefits.4 It is PBGC’s
understanding that these plans do so
because, before 1994, under section
417(e)(3) of the Code, plans were
required to use PBGC’s legacy interest
rates to determine the minimum
permissible lump sum equivalent of an
annuity benefit.5
The Retirement Protection Act of
1994, Public Law 103–465 (RPA ’94)
changed the interest rate specified in
section 417(e)(3) of the Code. As a
result, private-sector plans were no
longer required to use PBGC’s lump sum
interest rates to determine the minimum
lump sum equivalents of annuity
benefits. Anecdotal evidence suggests
many, if not most, plans were amended
to discontinue use of PBGC’s legacy
interest rates for calculating lump sum
2 PBGC also pays non-guaranteed benefits when
there are sufficient plan assets or recoveries.
3 See 29 CFR 4022.7(b)(1)(i).
4 Some insurers may also use PBGC’s legacy
interest rates to determine lump sums payable
under a group annuity contract for a pension plan
that used such rates after it closed out in a standard
termination.
5 To determine the minimum lump sum
equivalent of an annuity benefit, plans used PBGC’s
lump sum interest rates for benefits under $25,000
and used 120 percent of PBGC’s lump sum interest
rates for benefits $25,000 and over. Section
417(e)(3) of the Code (1988) (amended 1994).
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equivalents of annuity benefits by
adopting the new interest assumption
under section 417(e)(3) of the Code.
To preserve the possibility of a change
in the way PBGC-paid lump sums are
determined without affecting privatesector plans that use PBGC’s legacy
interest rates to determine lump sums,
PBGC publishes two separate tables of
lump sum interest rates. Appendix B
provides the interest rates for PBGCpaid lump sums, and appendix C
provides the legacy interest rates for use
by the private sector. The tables have
always been identical.
PBGC first started publishing two sets
of interest rates in 2000. At that time,
PBGC recommended that plan sponsors
amend (or draft) plans to explicitly refer
to ‘‘PBGC’s lump sum interest rates for
private-sector payments’’ (i.e., appendix
C) if they wanted to ensure plans would
not be affected by a future change to the
way in which PBGC-paid lump sums are
determined.6
Proposed Rule
On September 30, 2019 (at 84 FR
51490), PBGC published a proposed rule
to modernize the assumptions it uses to
determine de minimis lump sum
benefits. PBGC also proposed to
discontinue monthly publication of the
interest rates used for this purpose and
to provide a final interest rate set for use
by private-sector plans. PBGC received
seven comments on the proposal.
Commenters generally supported
PBGC’s proposal with respect to plans
PBGC trustees in the future.
Commenters expressed concern about
the proposed interest assumptions for
use by private-sector plans and the
proposed effective date, both of which
have been addressed with modifications
in the final rule. The public comments,
PBGC’s responses, and the provisions of
this final rule are discussed below.
Regulatory Changes
Adopt Lump Sum Assumptions From
Section 417(e)(3) of the Code
Actuarial practice, with the help of
technology, has moved toward a yieldcurve approach where future benefits
are discounted to the measurement date
based on yields on bonds of similar
duration. By associating an interest rate
with a specific time horizon, a yield
curve better approximates the present
value of future benefits. As a result, the
immediate-and-deferred structure of
PBGC’s legacy interest rates has become
increasingly obsolete.
Additionally, the methodology PBGC
uses to compute each month’s
6 See
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immediate and deferred interest rates,
which was established at a time when
computing resources were limited, is
simplistic and typically results in
interest rates significantly lower than
the rates most private-sector plans use
to determine lump sums.
Taking into consideration modern
structures and methods, PBGC proposed
to adopt the lump sum interest rate
assumption from section 417(e)(3) of the
Code. Specifically, PBGC proposed to
amend its benefit payments regulation
to provide that PBGC will use the
‘‘applicable interest rate’’ 7 specified in
section 417(e)(3)(C) of the Code for the
month containing a plan’s termination
date to calculate the present value of
annuity benefits (for the purposes of
determining if a benefit is de minimis
and if so, the amount payable as a lump
sum).
In developing the proposal, PBGC also
considered whether the lump sum
mortality assumption (i.e. the 1984
Unisex Pensioners Mortality Table)
should be replaced. Although that table
does not reflect recent mortality
improvements, the combination of using
it with PBGC’s legacy interest rates
typically results in lump sum amounts
that are similar to amounts determined
using the interest and mortality
assumptions under section 417(e)(3) of
the Code. Because this would no longer
hold true if PBGC were to adopt the
interest rates under section 417(e)(3) of
the Code without also revising its lump
sum mortality assumption, PBGC
proposed to amend its benefit payments
regulation to provide that it will use the
‘‘applicable mortality table’’ specified in
section 417(e)(3)(B) of the Code.
In the proposed rule, PBGC stated that
the changes to the interest and mortality
assumptions were expected to have a
minimal effect on participants and
beneficiaries of plans it trustees because
PBGC uses these assumptions only for
purposes of determining de minimis
lump sum amounts. In addition, PBGC
noted that because the interest and
mortality changes would generally have
offsetting effects, the net impact would
be small.
PBGC also noted that the actual
impact of the proposal on any particular
individual would depend on the
participant’s age and the assumptions in
effect at the time of plan termination
and that, depending on those factors,
PBGC-paid lump sums under the
proposal could be larger or smaller than
7 The interest assumption in section 417(e)(3) of
the Code was updated by section 302(b) of the
Pension Protection Act of 2006, Public Law 109–
280. The applicable interest rate is defined as the
spot segment rates published by the Internal
Revenue Service each month.
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had PBGC’s legacy assumptions
remained in effect. For example, for a
participant aged 40, the legacy
assumptions have resulted in lump
sums that are about the same as those
determined using the assumptions from
section 417(e)(3) of the Code for the past
few years.8 By contrast, during times
when interest rates are very high,
PBGC’s legacy assumptions result in
larger lump sums than those determined
using the assumptions from section
417(e)(3) of the Code. Finally, in a very
low interest rate environment, the
converse is true.
Commenters generally supported the
proposed changes to the interest and
mortality assumptions to be used by
PBGC when determining the lump sum
equivalent of benefits in plans PBGC
trustees in the future. The final rule, like
the proposed rule, amends PBGC’s
benefit payments regulation to provide
that it will use the ‘‘applicable interest
rate’’ and ‘‘applicable mortality table’’
specified in section 417(e)(3) of the
Code. As explained further in the
section discussing the effective date,
commenters suggested delaying the
effective date for these changes, which
PBGC incorporated into the final rule.
Discontinue Monthly Publication of
Legacy Interest Rates
As noted in the background section,
PBGC is aware that a relatively small
number of plans still use its legacy
interest rates to determine lump sums.
In developing the proposed rule, PBGC
considered whether to continue
calculating and publishing legacy
interest rates in appendix C for use by
private-sector plans.9 Given that the
legacy interest rates’ structure and
methodology have become increasingly
obsolete, PBGC proposed to discontinue
publication of the legacy interest rates
and to publish a final set of interest
rates in appendix C for private-sector
plans to use for valuation dates on or
after the effective date of the final rule.
Under the proposal, the final interest
rate set was equal to the average
immediate and deferred rates for the
120-month period ending in July 2019,
rounded to the nearest quarter percent.
Thus, PBGC proposed that for valuation
dates on or after the effective date of the
final rule, appendix C would provide for
an immediate rate of 1.5 percent for
8 Age 40 was used for this illustration because
over the past 10 years, the median age of
participants with de minimis benefits in trusteed
plans was age 40.
9 PBGC previously considered revising its
methodology for determining lump sum interest
rates and discontinuing publication of its legacy
interest rates in 1998. See 63 FR 57228 (October 26,
1998); 65 FR 14753 (March 17, 2000).
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discounting benefits for the period
between the annuity starting date and
each future payment date and a deferred
rate of 4 percent for discounting benefits
during the period leading up to the
annuity starting date.
Although most of the commenters
reported that they were aware of ‘‘few,
if any’’ plans that explicitly refer to
appendix C (or the rates PBGC publishes
for private sector use), these same
commenters expressed concern with
permanently ‘‘locking in’’ legacy
interest rates for plans that do refer to
appendix C. These commenters had no
objection to PBGC ceasing publication
of the legacy interest rates but requested
that PBGC adopt an alternative basis for
appendix C rates that is responsive to
market conditions. For example,
commenters suggested alternatives such
as amending appendix C to use the 10year Treasury yield curve rate, the 30year Treasury yield curve rate, or the
rate from Moody’s Daily Long-term
Corporate Bond Yield Averages for Aa
bonds.
PBGC believes it would be
inappropriate to adopt a completely
new methodology for appendix C (such
as the alternatives suggested by the
commenters) solely for private-sector
use. But, even though, ‘‘few, if any,
plans’’ would be affected by the
proposal to permanently fix the legacy
rates at the 120-month average, PBGC
appreciates the commenters’ concerns
about that approach. Therefore, PBGC is
not adopting that part of its proposal.
Instead, the final rule provides in
appendix C legacy interest rate
information determined in accordance
with PBGC’s long-standing, albeit
outdated, methodology, with two minor
modifications. Some background
information is needed to explain these
modifications.
PBGC’s methodology for determining
the legacy interest rates is based, in part,
on an applicable external bond rate: A
blend of the mean Aa and A Moody’s
Daily Long-term Corporate Bond Yield
Averages for the last five days of the
second preceding month. For example,
the ‘‘mean 5-day rate’’ for the last five
days of October is one of the parameters
used to determine the immediate legacy
interest rate for December. Given any
specific ‘‘mean 5-day rate,’’ the
methodology produces a single set of
immediate-and-deferred rates.
Therefore, it is possible to create a table
that shows the range of external rates
that result in each particular set of
immediate-and-deferred rates (e.g., if the
‘‘mean 5-day rate’’ for the last 5 days of
October is between X percent and Y
percent, for December, the immediate
rate is A percent, and the three deferred
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55589
rates are B, C, and D percent,
respectively).
The first modification is that instead
of continuing to determine and publish
the legacy interest rates each month, the
final rule provides a table in appendix
C that replicates PBGC’s methodology
by associating any given applicable
external bond rate with the set of
immediate-and-deferred rates the
methodology would have yielded. This
allows practitioners to determine which
set of legacy interest rates applies for
any month indefinitely. And, instead of
having to wait for PBGC to publish the
legacy rates each month, practitioners
will be able to look up the rates
themselves as soon as the applicable
external bond rate is published.
The second modification is a change
to the applicable external bond rate. The
Moody’s indices PBGC uses for this
purpose are available only for a fee. To
avoid increasing burden on plans that
use PBGC’s legacy interest rates, the
final rule substitutes the publicly
available 12-year rate for the second
preceding month from the corporate
bond yield curve (without regard to 24month averaging) published by the
Secretary of the Treasury and described
in section 430(h)(2)(D)(ii) of the Code,
which is closely correlated with the
‘‘mean 5-day rates’’ PBGC uses.
Although PBGC believes this
substitution will result in exactly the
same immediate-and-deferred rates the
majority of the time, in some cases, the
resulting rates may differ by a small
amount. For example, PBGC analyzed
what the legacy interest rates would
have been for the 120-month period
ending December 2019 had PBGC used
this substitute applicable external bond
rate instead of the ‘‘mean 5-day rate’’
determined using Moody’s rates. This
analysis showed that the resulting
immediate rate would have been exactly
the same 58 percent of the time and 25
basis points above or below the actual
legacy interest rate 41 percent of the
time. In other words, 99 percent of the
time, the resulting immediate rate
would have been no more than 25 basis
points different.
The following example illustrates
how to use the table in appendix C. For
purposes of this example, assume the
final rule became effective in January
2020, and a practitioner needed to
determine the March 2020 rates. A
practitioner would first determine the
12-year rate for the second preceding
month, January 2020. The January 2020
corporate bond yield curve is published
as Table 2020–1 in IRS Notice 2020–11
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I.R.B. 492.10 That table shows a 12-year
rate for January 2020 of 3.00 percent.
Turning to the table in appendix C, a
practitioner would see that because the
January 2020 12-year rate, 3.00 percent,
is below 3.18 percent, the immediate
annuity rate for March 2020 is 0.00
percent, and the three deferred annuity
rates are 4.00 percent. Similarly, if the
12-year rate for January 2020 had been
4.75 percent, the immediate annuity rate
for March 2020 would have been 1.75
percent.
With respect to plans that use PBGC’s
legacy rates but do not explicitly
reference appendix C (i.e., plans that
include a more general reference to
PBGC’s lump sum interest rates), the
preamble to the proposed rule stated
that ‘‘once the appendix C rates are no
longer identical to the rates used by
PBGC, the plan terms [for such a plan]
may have an ambiguity that should be
resolved.’’ One commenter questioned
the use of the word ‘‘ambiguity.’’ This
commenter stated that there would be
no ambiguity as to how the proposed
rule would affect those plans because if
PBGC started using the applicable
interest rates under section 417(e)(3) of
the Code to determine lump sums,
absent a plan amendment, such plans
would do the same. Further, the
commenter asserted that the Internal
Revenue Service’s (IRS) Revenue Ruling
81–12 makes clear that, absent a plan
amendment, the anti-cutback
requirements in section 411(d)(6) of the
Code would not apply to such plans.
In retrospect, PBGC realizes that this
sentence in the preamble to the
proposed rule may have unintentionally
caused some confusion. The word
‘‘ambiguity’’ in PBGC’s preamble was
not intended to suggest whether any
particular plan provision might be
ambiguous, or how a plan administrator
should interpret any particular plan
provision.
With respect to the application of
section 411(d)(6) of the Code, PBGC staff
consulted with staff at the Department
of the Treasury and the IRS (as
interpretation of that statutory provision
is within the jurisdiction of the
Secretary of the Treasury). The
Department of the Treasury and the IRS
informed PBGC that, in the case of a
plan provision under which the amount
of a lump sum distribution is
determined using PBGC’s lump sum
interest rate, the anti-cutback rules of
10 As of the date of publication of this rule, IRS
notices containing monthly yield curves are
available at https://www.irs.gov/retirement-plans/
recent-interest-rate-notices. In addition, a
spreadsheet containing ‘‘recent yield curve spot
rates’’ is available at https://www.irs.gov/retirementplans/monthly-yield-curve-tables.
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section 411(d)(6) of the Code are not
violated merely because the application
of this final rule results in a change in
the underlying interest rate(s) used to
determine the amount of a lump sum
distribution.
Effective Date
PBGC received five comments
concerning the timing of the final rule.
These commenters noted that, with
respect to plans that use PBGC’s legacy
interest rates to determine lump sum
amounts, the amount payable as a lump
sum would, in some cases, decrease as
soon as the rule takes effect. These
commenters reported that affected plans
may need time to communicate the
changes to participants, to update
administrative systems, and to
determine whether to (or how to)
mitigate any undesired effects (e.g., a
rush to retire among participants
concerned about an upcoming decrease
in lump sum amounts). For these
reasons, they requested that PBGC
provide a period of time between the
date the final rule is published and
when it takes effect.
With the final rule’s continuation of
PBGC’s legacy interest rates in appendix
C, participants in plans that use
appendix C rates will not see significant
changes in lump sum amounts, and
there will be no incentive for
participants to retire sooner than
planned, so there is no need for a
delayed effective date. However, for
plans that use PBGC’s legacy interest
rates without specific reference to
appendix C or the rates for privatesector use, which commenters report
represent the vast majority of the
relatively few plans that use the legacy
interest rates, PBGC agrees that a
delayed effective date could be helpful
for communicating and implementing
the change. A delayed effective date
could also be helpful for giving plans
time to consider whether (and how) to
mitigate any concerns they may have. In
response to these comments, PBGC is
providing a delayed effective date of
January 1, 2021. This means PBGC will
continue to publish monthly legacy
interest rates for both appendix B and
appendix C through December 2020.
Executive Orders 12866, 13563, and
13771
OMB has determined that this
rulemaking is not a ‘‘significant
regulatory action’’ under Executive
Order 12866. Accordingly, this final
rule is exempt from the requirements of
Executive Order 13771 and OMB has
not reviewed the rule under Executive
Order 12866. Executive Orders 12866
and 13563 direct agencies to assess all
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costs and benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity).
Although this is not a significant
regulatory action under Executive Order
12866, PBGC has examined the
economic implications of this final rule
and has concluded that the changes will
have minimal impact on PBGC’s
payment of lump sum benefits. As
discussed above, applying the
assumptions under section 417(e)(3) of
the Code to a benefit could slightly raise
or lower a lump sum benefit paid by
PBGC. Additionally, with respect to
PBGC-trusteed plans terminating on or
after the effective date, some benefits
that would have been considered de
minimis using the prior assumptions
would not be de minimis using the
revised assumptions (and vice versa).
Because PBGC only pays de minimis
lump sums, from an aggregate cost
perspective, any change in PBGC’s lump
sum payments is minimal.
PBGC also has concluded that the
final rule will have minimal impact on
private-sector plans. As explained in the
preamble, relatively few plans use
PBGC’s legacy interest rates to
determine lump sums. Plans that refer
specifically to appendix C will continue
to use PBGC’s legacy interest rates. To
determine the immediate-and-deferred
interest rates in effect for each month,
plan administrators will look up an
interest rate published by the IRS,
which is no more burdensome than
determining the immediate-anddeferred rates under current regulations.
For plans that refer generally to PBGC’s
lump sum interest rates or the rates
PBGC uses, commenters said that there
could be administrative costs associated
with implementing processes and
procedures, updating systems for
administering benefits, and
communicating with participants, but
did not quantify these costs. The costs
will be contingent on plans’ individual
circumstances and plan sponsors’
responses to these changes.
Section 6 of Executive Order 13563
requires agencies to rethink existing
regulations by periodically reviewing
their regulatory program for rules that
‘‘may be outmoded, ineffective,
insufficient, or excessively
burdensome.’’ These rules should be
modified, streamlined, expanded, or
repealed as appropriate. PBGC has
identified the assumptions used for
lump sums in its benefit payments
regulation as outmoded and the
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amendment to discontinue publication
of these assumptions as consistent with
the principles for review under
Executive Order 13563.
Regulatory Flexibility Act
The Regulatory Flexibility Act
imposes certain requirements with
respect to rules that are subject to the
notice-and-comment requirements of
section 553(b) of the Administrative
Procedure Act and that are likely to
have a significant economic impact on
a substantial number of small entities.
Unless an agency determines that a rule
is not likely to have a significant
economic impact on a substantial
number of small entities, section 604 of
the Regulatory Flexibility Act requires
that the agency present a final
regulatory flexibility analysis at the time
of the publication of the final rule
describing the impact of the rule on
small entities and seeking public
comment on such impact. Small entities
include small businesses, organizations,
and governmental jurisdictions.
For purposes of the Regulatory
Flexibility Act requirements with
respect to this final rule, PBGC
considers a small entity to be a plan
with fewer than 100 participants. This
is substantially the same criterion PBGC
uses in other regulations 11 and is
consistent with certain requirements in
title I of ERISA 12 and the Code,13 as
well as the definition of a small entity
that the Department of Labor has used
for purposes of the Regulatory
Flexibility Act.14
Further, while some large employers
operate small plans along with larger
ones, in general, most small plans are
maintained by small employers. Thus,
PBGC believes that assessing the impact
of the final rule on small plans is an
appropriate substitute for evaluating the
effect on small entities. The definition
of small entity considered appropriate
for this purpose differs, however, from
a definition of small business based on
size standards promulgated by the Small
Business Administration (13 CFR
121.201) pursuant to the Small Business
Act. PBGC requested comments on the
appropriateness of the size standard
used in evaluating the impact of the
proposed rule on small entities. PBGC
did not receive any such comments.
On the basis of its definition of small
entity, PBGC certifies under section
605(b) of the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) that the
amendments in this rule will not have
11 See, e.g., special rules for small plans under
part 4007 (Payment of Premiums).
12 See, e.g., section 104(a)(2) of ERISA, which
permits the Secretary of Labor to prescribe
VerDate Sep<11>2014
15:58 Sep 08, 2020
Jkt 250001
a significant economic impact on a
substantial number of small entities
because this rule primarily impacts
participants in PBGC-trusteed plans. In
addition, commenters confirmed that
relatively few plans of any size use
PBGC’s legacy interest rates to calculate
lump sums. Therefore, it is unlikely that
the rule will significantly impact a
substantial number of small plans.
Accordingly, as provided in section 605
of the Regulatory Flexibility Act,
sections 603 and 604 do not apply.
List of Subjects in 29 CFR Part 4022
Employee benefit plans, Pension
insurance, Reporting and recordkeeping
requirements.
For the reasons given above, PBGC is
amending 29 CFR part 4022 as follows:
PART 4022—BENEFITS PAYABLE IN
TERMINATED SINGLE-EMPLOYER
PLANS
1. The authority citation for part 4022
continues to read as follows:
■
Authority: 29 U.S.C 1302, 1322, 1322b,
1341(c)(3)(D), and 1344.
2. Amend § 4022.7 by revising
paragraphs (d)(2) and (e) to read as
follows:
■
§ 4022.7 Benefits payable in a single
installment.
*
*
*
*
*
(d) * * *
(2) Actuarial assumptions. PBGC will
calculate the lump sum value of a
benefit by valuing the monthly annuity
benefits payable in the form determined
under § 4044.51(a) of this chapter and
commencing at the time determined
under § 4044.51(b) of this chapter. The
actuarial assumptions used will be those
described in § 4044.52 of this chapter,
except as follows:
(i) Loading for expenses. There will be
no adjustment to reflect the loading for
expenses.
(ii) Mortality assumption. The
‘‘applicable mortality table’’ specified in
section 205(g)(3)(B)(i) of ERISA and
section 417(e)(3)(B) of the Code for the
year containing the termination date
will apply.
(iii) Interest rate assumption. The
‘‘applicable interest rate’’ specified in
section 205(g)(3)(B)(ii) of ERISA and
section 417(e)(3)(C) of the Code for the
month containing the termination date
will apply.
(iv) Date for determining lump sum
value. The date as of which a lump sum
simplified annual reports for pension plans that
cover fewer than 100 participants.
13 See, e.g., section 430(g)(2)(B) of the Code,
which permits plans with 100 or fewer participants
PO 00000
Frm 00005
Fmt 4700
Sfmt 4700
55591
value is calculated is the termination
date, except that in the case of a
subsequent insufficiency it is the date
described in section 4062(b)(1)(B) of
ERISA.
(e) Private-sector lump sum rates.
PBGC provides lump sum interest rates
for private-sector payments in appendix
C to this part.
Appendix A to Part 4022—[Removed
and Reserved]
■
3. Remove and reserve appendix A.
Appendix B to Part 4022—[Removed
and Reserved]
4. Remove and reserve appendix B.
5. Revise appendix C to read as
follows:
■
■
Appendix C to Part 4022—Lump Sum
Interest Rates for Private-Sector
Payments
[In using this table:
(1) To determine the applicable rate
set for any given month (month x), use
the applicable 12-year rate for the
second preceding month (month x¥2)
to find the corresponding rate set. The
applicable 12-year rate for the second
preceding month is the 12-year rate
from the corporate bond yield curve
described in section 430(h)(2)(D)(ii) of
the Code determined without regard to
24-month averaging for the second
month preceding the month of the
desired applicable rate set.
(2) For benefits for which the
participant or beneficiary is entitled to
be in pay status on the valuation date,
the immediate annuity rate shall apply.
(3) For benefits for which the deferral
period is y years (where y is an integer
and 0 < y ≤ 7), interest rate i1 shall apply
from the valuation date for a period of
y years; thereafter the immediate
annuity rate shall apply.
(4) For benefits for which the deferral
period is y years (where y is an integer
and 7 < y ≤ 15), interest rate i2 shall
apply from the valuation date for a
period of y¥7 years; interest rate i1
shall apply for the following 7 years;
thereafter the immediate annuity rate
shall apply.
(5) For benefits for which the deferral
period is y years (where y is an integer
and y > 15), interest rate i3 shall apply
from the valuation date for a period of
y¥15 years; interest rate i2 shall apply
for the following 8 years; interest rate i1
shall apply for the following 7 years;
thereafter the immediate annuity rate
shall apply.]
to use valuation dates other than the first day of the
plan year.
14 See, e.g., DOL’s final rule on Prohibited
Transaction Exemption Procedures, 76 FR 66,637,
66,644 (Oct. 27, 2011).
E:\FR\FM\09SER1.SGM
09SER1
55592
Federal Register / Vol. 85, No. 175 / Wednesday, September 9, 2020 / Rules and Regulations
FOR PLANS WITH A VALUATION DATE ON OR AFTER JANUARY 1, 2021
Applicable rate set for month x
Applicable 12-year rate for month x¥2
(percent)
Immediate
annuity rate
(percent)
Below 3.18 .......................................................................................................
3.18 to 3.40 ......................................................................................................
3.41 to 3.63 ......................................................................................................
3.64 to 3.87 ......................................................................................................
3.88 to 4.10 ......................................................................................................
4.11 to 4.34 ......................................................................................................
4.35 to 4.57 ......................................................................................................
4.58 to 4.81 ......................................................................................................
4.82 to 5.04 ......................................................................................................
5.05 to 5.28 ......................................................................................................
5.29 to 5.51 ......................................................................................................
5.52 to 5.75 ......................................................................................................
5.76 to 5.98 ......................................................................................................
5.99 to 6.22 ......................................................................................................
6.23 to 6.46 ......................................................................................................
6.47 to 6.69 ......................................................................................................
6.70 to 6.93 ......................................................................................................
6.94 to 7.16 ......................................................................................................
7.17 to 7.40 ......................................................................................................
7.41 to 7.64 ......................................................................................................
7.65 to 7.87 ......................................................................................................
7.88 to 8.11 ......................................................................................................
8.12 to 8.35 ......................................................................................................
8.36 to 8.58 ......................................................................................................
8.59 to 8.82 ......................................................................................................
8.83 to 9.06 ......................................................................................................
9.07 to 9.30 ......................................................................................................
9.31 to 9.53 ......................................................................................................
9.54 to 9.78 ......................................................................................................
9.79 to 10.02 ....................................................................................................
Above 10.02 .....................................................................................................
Issued in Washington, DC.
Gordon Hartogensis,
Director, Pension Benefit Guaranty
Corporation.
[FR Doc. 2020–19610 Filed 9–8–20; 8:45 am]
BILLING CODE 7709–02–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 622
[Docket No. 200811–0215]
RIN 0648–BJ69
Fisheries of the Caribbean, Gulf of
Mexico, and South Atlantic; Coastal
Migratory Pelagic Resources in the
Gulf of Mexico and Atlantic Region;
Framework Amendment 8
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Final rule.
AGENCY:
VerDate Sep<11>2014
15:58 Sep 08, 2020
Jkt 250001
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
i2
i1
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
5.25
5.50
5.75
6.00
6.25
6.50
6.75
7.00
7.25
7.50
NMFS issues regulations to
implement management measures
described in Framework Amendment 8
to the Fishery Management Plan (FMP)
for Coastal Migratory Pelagic Resources
(CMP) of the Gulf of Mexico (Gulf) and
Atlantic Region (CMP FMP), as prepared
by the South Atlantic Fishery
Management Council (Council). This
final rule revises the Atlantic migratory
group king mackerel commercial trip
limit in a portion of the Atlantic
southern zone during the October
through February fishing season. The
purpose of this final rule is to support
increased fishing activity and economic
opportunity while continuing to
constrain harvest to the annual catch
limit (ACL).
DATES: This final rule is effective
September 9, 2020.
ADDRESSES: Electronic copies
Framework Amendment 8 may be
obtained from the Southeast Regional
Office website at: https://
www.fisheries.noaa.gov/action/
framework-amendment-8-kingmackerel-trip-limits.
FOR FURTHER INFORMATION CONTACT:
Karla Gore, NMFS Southeast Regional
SUMMARY:
Deferred annuity rates
(percent)
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.25
4.50
4.75
5.00
5.25
5.50
5.75
6.00
6.25
6.50
6.75
i3
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.25
4.50
4.75
5.00
5.25
5.50
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
Office, telephone: 727–551–5753, or
email: karla.gore@noaa.gov.
SUPPLEMENTARY INFORMATION: The CMP
fishery is managed under the CMP FMP
which includes king mackerel and
Spanish mackerel, and cobia in the Gulf
of Mexico. The Council and the Gulf of
Mexico Fishery Management Council
jointly manage the CMP FMP. The CMP
FMP was prepared by both Councils and
is implemented by NMFS through
regulations at 50 CFR part 622 under
authority of the Magnuson-Stevens
Fishery Conservation and Management
Act (Magnuson-Stevens Act). Under the
CMP FMP, each Council has the ability
to develop individual framework
amendments to the FMP for certain
actions that are specific to each region.
On May 19, 2020, NMFS published
the proposed rule for Framework
Amendment 8 and requested public
comment (85 FR 29916). The proposed
rule and the Framework Amendment 8
outline the rationale for the actions
contained in this final rule. A summary
of the management measures described
in the Framework Amendment 8 and
implemented by this final rule is
described below.
E:\FR\FM\09SER1.SGM
09SER1
]]>Agencies
[Federal Register Volume 85, Number 175 (Wednesday, September 9, 2020)]
[Rules and Regulations]
[Pages 55587-55592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19610]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
29 CFR Part 4022
RIN 1212-AB41
Lump Sum Payment Assumptions
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule modifies the assumptions the Pension Benefit
Guaranty Corporation (PBGC) uses to determine de minimis lump sum
benefits in PBGC-trusteed terminated single-employer defined benefit
pension plans and discontinues monthly publication of PBGC's lump sum
interest rate assumptions.
DATES: Effective date: This rule is effective January 1, 2021.
Applicability date: The amendments affecting PBGC's calculation and
payment of lump sum benefits apply to trusteed plans with termination
dates on or after January 1, 2021.
FOR FURTHER INFORMATION CONTACT: Gregory M. Katz
([email protected]), Attorney, Regulatory Affairs Division, Office
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street NW, Washington, DC 20005-4026; 202-229-3829. TTY users may call
the Federal relay service toll-free at 1-800-877-8339 and ask to be
connected to 202-229-3829.
SUPPLEMENTARY INFORMATION:
Executive Summary--Purpose and Authority
This rule is intended to modernize the methodology used to
determine de minimis lump sums in terminated underfunded single-
employer plans. Specifically, PBGC is adopting the interest and
mortality assumptions from section 417(e)(3) of the Internal Revenue
Code (Code) \1\ for this purpose. It also discontinues PBGC's monthly
calculation and publication of interest rate assumptions. Because some
private-sector plans use PBGC's lump sum interest rates, the rule
provides a table for plans to use to determine interest assumptions in
accordance with PBGC's historical methodology.
---------------------------------------------------------------------------
\1\ Section 417(e)(3) of the Code and section 205(g)(3) of the
Employee Retirement Income Security Act of 1974 (ERISA) are parallel
provisions in ERISA and the Code.
---------------------------------------------------------------------------
Legal authority for this action comes from section 4002(b)(3) of
the Employee Retirement Income Security Act of 1974 (ERISA), which
authorizes PBGC to issue regulations to carry out the purposes of title
IV of ERISA and section 4022 of ERISA (Single-Employer Plan Benefits
Guaranteed).
Background
The Pension Benefit Guaranty Corporation (PBGC) administers two
insurance programs for private-sector defined benefit pension plans
under title IV of the Employee Retirement Income Security Act of 1974
(ERISA): A single-employer plan termination insurance program and a
multiemployer plan insolvency insurance program. This rule applies only
to the single-employer program.
PBGC has identified these amendments as part of its ongoing
retrospective review of its regulations to ensure that PBGC provides
clear and helpful guidance, minimizes burdens and maximizes benefits,
and addresses ineffective and outdated rules.
Use of Lump Sum Assumptions by PBGC
Covered single-employer plans that are underfunded may terminate in
either a distress termination under section 4041(c) of ERISA or in an
involuntary termination (one initiated by PBGC) under section 4042 of
ERISA. When such a plan terminates, PBGC typically is appointed
statutory trustee of the plan and becomes responsible for
[[Page 55588]]
paying guaranteed benefits in accordance with section 4022 of ERISA and
PBGC's regulation on Benefits Payable in Terminated Single-Employer
Plans (29 CFR part 4022).\2\
---------------------------------------------------------------------------
\2\ PBGC also pays non-guaranteed benefits when there are
sufficient plan assets or recoveries.
---------------------------------------------------------------------------
PBGC calculates the present value of each participant's benefit to
determine whether it is de minimis (present value of $5,000 or less)
and therefore may be paid as a lump sum.\3\ Assumptions used to value
benefits for this purpose are set forth in PBGC's benefit payments
regulation. The interest assumption, published each month, employs a
four-tiered structure to discount future benefit payments for
determining their lump sum equivalent. This structure consists of an
``immediate'' rate for discounting benefits for the period between the
annuity starting date and each future payment date, and up to three
``deferred'' rates for discounting benefits during specified parts of
the period leading up to the annuity starting date (e.g., first 7
years, next 8 years, and years beyond). The mortality assumption is the
1984 Unisex Pensioners Mortality Table.
---------------------------------------------------------------------------
\3\ See 29 CFR 4022.7(b)(1)(i).
---------------------------------------------------------------------------
Use of PBGC's Lump Sum Interest Rates by Private Sector
PBGC is aware that a relatively small number of plans use PBGC's
interest rates as computed using its historical methodology (legacy
interest rates) to determine the lump sum equivalents of annuity
benefits.\4\ It is PBGC's understanding that these plans do so because,
before 1994, under section 417(e)(3) of the Code, plans were required
to use PBGC's legacy interest rates to determine the minimum
permissible lump sum equivalent of an annuity benefit.\5\
---------------------------------------------------------------------------
\4\ Some insurers may also use PBGC's legacy interest rates to
determine lump sums payable under a group annuity contract for a
pension plan that used such rates after it closed out in a standard
termination.
\5\ To determine the minimum lump sum equivalent of an annuity
benefit, plans used PBGC's lump sum interest rates for benefits
under $25,000 and used 120 percent of PBGC's lump sum interest rates
for benefits $25,000 and over. Section 417(e)(3) of the Code (1988)
(amended 1994).
---------------------------------------------------------------------------
The Retirement Protection Act of 1994, Public Law 103-465 (RPA '94)
changed the interest rate specified in section 417(e)(3) of the Code.
As a result, private-sector plans were no longer required to use PBGC's
lump sum interest rates to determine the minimum lump sum equivalents
of annuity benefits. Anecdotal evidence suggests many, if not most,
plans were amended to discontinue use of PBGC's legacy interest rates
for calculating lump sum equivalents of annuity benefits by adopting
the new interest assumption under section 417(e)(3) of the Code.
To preserve the possibility of a change in the way PBGC-paid lump
sums are determined without affecting private-sector plans that use
PBGC's legacy interest rates to determine lump sums, PBGC publishes two
separate tables of lump sum interest rates. Appendix B provides the
interest rates for PBGC-paid lump sums, and appendix C provides the
legacy interest rates for use by the private sector. The tables have
always been identical.
PBGC first started publishing two sets of interest rates in 2000.
At that time, PBGC recommended that plan sponsors amend (or draft)
plans to explicitly refer to ``PBGC's lump sum interest rates for
private-sector payments'' (i.e., appendix C) if they wanted to ensure
plans would not be affected by a future change to the way in which
PBGC-paid lump sums are determined.\6\
---------------------------------------------------------------------------
\6\ See 65 FR 14753, 14755 (March 17, 2000).
---------------------------------------------------------------------------
Proposed Rule
On September 30, 2019 (at 84 FR 51490), PBGC published a proposed
rule to modernize the assumptions it uses to determine de minimis lump
sum benefits. PBGC also proposed to discontinue monthly publication of
the interest rates used for this purpose and to provide a final
interest rate set for use by private-sector plans. PBGC received seven
comments on the proposal. Commenters generally supported PBGC's
proposal with respect to plans PBGC trustees in the future. Commenters
expressed concern about the proposed interest assumptions for use by
private-sector plans and the proposed effective date, both of which
have been addressed with modifications in the final rule. The public
comments, PBGC's responses, and the provisions of this final rule are
discussed below.
Regulatory Changes
Adopt Lump Sum Assumptions From Section 417(e)(3) of the Code
Actuarial practice, with the help of technology, has moved toward a
yield-curve approach where future benefits are discounted to the
measurement date based on yields on bonds of similar duration. By
associating an interest rate with a specific time horizon, a yield
curve better approximates the present value of future benefits. As a
result, the immediate-and-deferred structure of PBGC's legacy interest
rates has become increasingly obsolete.
Additionally, the methodology PBGC uses to compute each month's
immediate and deferred interest rates, which was established at a time
when computing resources were limited, is simplistic and typically
results in interest rates significantly lower than the rates most
private-sector plans use to determine lump sums.
Taking into consideration modern structures and methods, PBGC
proposed to adopt the lump sum interest rate assumption from section
417(e)(3) of the Code. Specifically, PBGC proposed to amend its benefit
payments regulation to provide that PBGC will use the ``applicable
interest rate'' \7\ specified in section 417(e)(3)(C) of the Code for
the month containing a plan's termination date to calculate the present
value of annuity benefits (for the purposes of determining if a benefit
is de minimis and if so, the amount payable as a lump sum).
---------------------------------------------------------------------------
\7\ The interest assumption in section 417(e)(3) of the Code was
updated by section 302(b) of the Pension Protection Act of 2006,
Public Law 109-280. The applicable interest rate is defined as the
spot segment rates published by the Internal Revenue Service each
month.
---------------------------------------------------------------------------
In developing the proposal, PBGC also considered whether the lump
sum mortality assumption (i.e. the 1984 Unisex Pensioners Mortality
Table) should be replaced. Although that table does not reflect recent
mortality improvements, the combination of using it with PBGC's legacy
interest rates typically results in lump sum amounts that are similar
to amounts determined using the interest and mortality assumptions
under section 417(e)(3) of the Code. Because this would no longer hold
true if PBGC were to adopt the interest rates under section 417(e)(3)
of the Code without also revising its lump sum mortality assumption,
PBGC proposed to amend its benefit payments regulation to provide that
it will use the ``applicable mortality table'' specified in section
417(e)(3)(B) of the Code.
In the proposed rule, PBGC stated that the changes to the interest
and mortality assumptions were expected to have a minimal effect on
participants and beneficiaries of plans it trustees because PBGC uses
these assumptions only for purposes of determining de minimis lump sum
amounts. In addition, PBGC noted that because the interest and
mortality changes would generally have offsetting effects, the net
impact would be small.
PBGC also noted that the actual impact of the proposal on any
particular individual would depend on the participant's age and the
assumptions in effect at the time of plan termination and that,
depending on those factors, PBGC-paid lump sums under the proposal
could be larger or smaller than
[[Page 55589]]
had PBGC's legacy assumptions remained in effect. For example, for a
participant aged 40, the legacy assumptions have resulted in lump sums
that are about the same as those determined using the assumptions from
section 417(e)(3) of the Code for the past few years.\8\ By contrast,
during times when interest rates are very high, PBGC's legacy
assumptions result in larger lump sums than those determined using the
assumptions from section 417(e)(3) of the Code. Finally, in a very low
interest rate environment, the converse is true.
---------------------------------------------------------------------------
\8\ Age 40 was used for this illustration because over the past
10 years, the median age of participants with de minimis benefits in
trusteed plans was age 40.
---------------------------------------------------------------------------
Commenters generally supported the proposed changes to the interest
and mortality assumptions to be used by PBGC when determining the lump
sum equivalent of benefits in plans PBGC trustees in the future. The
final rule, like the proposed rule, amends PBGC's benefit payments
regulation to provide that it will use the ``applicable interest rate''
and ``applicable mortality table'' specified in section 417(e)(3) of
the Code. As explained further in the section discussing the effective
date, commenters suggested delaying the effective date for these
changes, which PBGC incorporated into the final rule.
Discontinue Monthly Publication of Legacy Interest Rates
As noted in the background section, PBGC is aware that a relatively
small number of plans still use its legacy interest rates to determine
lump sums. In developing the proposed rule, PBGC considered whether to
continue calculating and publishing legacy interest rates in appendix C
for use by private-sector plans.\9\ Given that the legacy interest
rates' structure and methodology have become increasingly obsolete,
PBGC proposed to discontinue publication of the legacy interest rates
and to publish a final set of interest rates in appendix C for private-
sector plans to use for valuation dates on or after the effective date
of the final rule. Under the proposal, the final interest rate set was
equal to the average immediate and deferred rates for the 120-month
period ending in July 2019, rounded to the nearest quarter percent.
Thus, PBGC proposed that for valuation dates on or after the effective
date of the final rule, appendix C would provide for an immediate rate
of 1.5 percent for discounting benefits for the period between the
annuity starting date and each future payment date and a deferred rate
of 4 percent for discounting benefits during the period leading up to
the annuity starting date.
---------------------------------------------------------------------------
\9\ PBGC previously considered revising its methodology for
determining lump sum interest rates and discontinuing publication of
its legacy interest rates in 1998. See 63 FR 57228 (October 26,
1998); 65 FR 14753 (March 17, 2000).
---------------------------------------------------------------------------
Although most of the commenters reported that they were aware of
``few, if any'' plans that explicitly refer to appendix C (or the rates
PBGC publishes for private sector use), these same commenters expressed
concern with permanently ``locking in'' legacy interest rates for plans
that do refer to appendix C. These commenters had no objection to PBGC
ceasing publication of the legacy interest rates but requested that
PBGC adopt an alternative basis for appendix C rates that is responsive
to market conditions. For example, commenters suggested alternatives
such as amending appendix C to use the 10-year Treasury yield curve
rate, the 30-year Treasury yield curve rate, or the rate from Moody's
Daily Long-term Corporate Bond Yield Averages for Aa bonds.
PBGC believes it would be inappropriate to adopt a completely new
methodology for appendix C (such as the alternatives suggested by the
commenters) solely for private-sector use. But, even though, ``few, if
any, plans'' would be affected by the proposal to permanently fix the
legacy rates at the 120-month average, PBGC appreciates the commenters'
concerns about that approach. Therefore, PBGC is not adopting that part
of its proposal. Instead, the final rule provides in appendix C legacy
interest rate information determined in accordance with PBGC's long-
standing, albeit outdated, methodology, with two minor modifications.
Some background information is needed to explain these modifications.
PBGC's methodology for determining the legacy interest rates is
based, in part, on an applicable external bond rate: A blend of the
mean Aa and A Moody's Daily Long-term Corporate Bond Yield Averages for
the last five days of the second preceding month. For example, the
``mean 5-day rate'' for the last five days of October is one of the
parameters used to determine the immediate legacy interest rate for
December. Given any specific ``mean 5-day rate,'' the methodology
produces a single set of immediate-and-deferred rates. Therefore, it is
possible to create a table that shows the range of external rates that
result in each particular set of immediate-and-deferred rates (e.g., if
the ``mean 5-day rate'' for the last 5 days of October is between X
percent and Y percent, for December, the immediate rate is A percent,
and the three deferred rates are B, C, and D percent, respectively).
The first modification is that instead of continuing to determine
and publish the legacy interest rates each month, the final rule
provides a table in appendix C that replicates PBGC's methodology by
associating any given applicable external bond rate with the set of
immediate-and-deferred rates the methodology would have yielded. This
allows practitioners to determine which set of legacy interest rates
applies for any month indefinitely. And, instead of having to wait for
PBGC to publish the legacy rates each month, practitioners will be able
to look up the rates themselves as soon as the applicable external bond
rate is published.
The second modification is a change to the applicable external bond
rate. The Moody's indices PBGC uses for this purpose are available only
for a fee. To avoid increasing burden on plans that use PBGC's legacy
interest rates, the final rule substitutes the publicly available 12-
year rate for the second preceding month from the corporate bond yield
curve (without regard to 24-month averaging) published by the Secretary
of the Treasury and described in section 430(h)(2)(D)(ii) of the Code,
which is closely correlated with the ``mean 5-day rates'' PBGC uses.
Although PBGC believes this substitution will result in exactly the
same immediate-and-deferred rates the majority of the time, in some
cases, the resulting rates may differ by a small amount. For example,
PBGC analyzed what the legacy interest rates would have been for the
120-month period ending December 2019 had PBGC used this substitute
applicable external bond rate instead of the ``mean 5-day rate''
determined using Moody's rates. This analysis showed that the resulting
immediate rate would have been exactly the same 58 percent of the time
and 25 basis points above or below the actual legacy interest rate 41
percent of the time. In other words, 99 percent of the time, the
resulting immediate rate would have been no more than 25 basis points
different.
The following example illustrates how to use the table in appendix
C. For purposes of this example, assume the final rule became effective
in January 2020, and a practitioner needed to determine the March 2020
rates. A practitioner would first determine the 12-year rate for the
second preceding month, January 2020. The January 2020 corporate bond
yield curve is published as Table 2020-1 in IRS Notice 2020-11
[[Page 55590]]
I.R.B. 492.\10\ That table shows a 12-year rate for January 2020 of
3.00 percent. Turning to the table in appendix C, a practitioner would
see that because the January 2020 12-year rate, 3.00 percent, is below
3.18 percent, the immediate annuity rate for March 2020 is 0.00
percent, and the three deferred annuity rates are 4.00 percent.
Similarly, if the 12-year rate for January 2020 had been 4.75 percent,
the immediate annuity rate for March 2020 would have been 1.75 percent.
---------------------------------------------------------------------------
\10\ As of the date of publication of this rule, IRS notices
containing monthly yield curves are available at https://www.irs.gov/retirement-plans/recent-interest-rate-notices. In
addition, a spreadsheet containing ``recent yield curve spot rates''
is available at https://www.irs.gov/retirement-plans/monthly-yield-curve-tables.
---------------------------------------------------------------------------
With respect to plans that use PBGC's legacy rates but do not
explicitly reference appendix C (i.e., plans that include a more
general reference to PBGC's lump sum interest rates), the preamble to
the proposed rule stated that ``once the appendix C rates are no longer
identical to the rates used by PBGC, the plan terms [for such a plan]
may have an ambiguity that should be resolved.'' One commenter
questioned the use of the word ``ambiguity.'' This commenter stated
that there would be no ambiguity as to how the proposed rule would
affect those plans because if PBGC started using the applicable
interest rates under section 417(e)(3) of the Code to determine lump
sums, absent a plan amendment, such plans would do the same. Further,
the commenter asserted that the Internal Revenue Service's (IRS)
Revenue Ruling 81-12 makes clear that, absent a plan amendment, the
anti-cutback requirements in section 411(d)(6) of the Code would not
apply to such plans.
In retrospect, PBGC realizes that this sentence in the preamble to
the proposed rule may have unintentionally caused some confusion. The
word ``ambiguity'' in PBGC's preamble was not intended to suggest
whether any particular plan provision might be ambiguous, or how a plan
administrator should interpret any particular plan provision.
With respect to the application of section 411(d)(6) of the Code,
PBGC staff consulted with staff at the Department of the Treasury and
the IRS (as interpretation of that statutory provision is within the
jurisdiction of the Secretary of the Treasury). The Department of the
Treasury and the IRS informed PBGC that, in the case of a plan
provision under which the amount of a lump sum distribution is
determined using PBGC's lump sum interest rate, the anti-cutback rules
of section 411(d)(6) of the Code are not violated merely because the
application of this final rule results in a change in the underlying
interest rate(s) used to determine the amount of a lump sum
distribution.
Effective Date
PBGC received five comments concerning the timing of the final
rule. These commenters noted that, with respect to plans that use
PBGC's legacy interest rates to determine lump sum amounts, the amount
payable as a lump sum would, in some cases, decrease as soon as the
rule takes effect. These commenters reported that affected plans may
need time to communicate the changes to participants, to update
administrative systems, and to determine whether to (or how to)
mitigate any undesired effects (e.g., a rush to retire among
participants concerned about an upcoming decrease in lump sum amounts).
For these reasons, they requested that PBGC provide a period of time
between the date the final rule is published and when it takes effect.
With the final rule's continuation of PBGC's legacy interest rates
in appendix C, participants in plans that use appendix C rates will not
see significant changes in lump sum amounts, and there will be no
incentive for participants to retire sooner than planned, so there is
no need for a delayed effective date. However, for plans that use
PBGC's legacy interest rates without specific reference to appendix C
or the rates for private-sector use, which commenters report represent
the vast majority of the relatively few plans that use the legacy
interest rates, PBGC agrees that a delayed effective date could be
helpful for communicating and implementing the change. A delayed
effective date could also be helpful for giving plans time to consider
whether (and how) to mitigate any concerns they may have. In response
to these comments, PBGC is providing a delayed effective date of
January 1, 2021. This means PBGC will continue to publish monthly
legacy interest rates for both appendix B and appendix C through
December 2020.
Executive Orders 12866, 13563, and 13771
OMB has determined that this rulemaking is not a ``significant
regulatory action'' under Executive Order 12866. Accordingly, this
final rule is exempt from the requirements of Executive Order 13771 and
OMB has not reviewed the rule under Executive Order 12866. Executive
Orders 12866 and 13563 direct agencies to assess all costs and benefits
of available regulatory alternatives and, if regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic, environmental, public health and safety effects,
distributive impacts, and equity).
Although this is not a significant regulatory action under
Executive Order 12866, PBGC has examined the economic implications of
this final rule and has concluded that the changes will have minimal
impact on PBGC's payment of lump sum benefits. As discussed above,
applying the assumptions under section 417(e)(3) of the Code to a
benefit could slightly raise or lower a lump sum benefit paid by PBGC.
Additionally, with respect to PBGC-trusteed plans terminating on or
after the effective date, some benefits that would have been considered
de minimis using the prior assumptions would not be de minimis using
the revised assumptions (and vice versa). Because PBGC only pays de
minimis lump sums, from an aggregate cost perspective, any change in
PBGC's lump sum payments is minimal.
PBGC also has concluded that the final rule will have minimal
impact on private-sector plans. As explained in the preamble,
relatively few plans use PBGC's legacy interest rates to determine lump
sums. Plans that refer specifically to appendix C will continue to use
PBGC's legacy interest rates. To determine the immediate-and-deferred
interest rates in effect for each month, plan administrators will look
up an interest rate published by the IRS, which is no more burdensome
than determining the immediate-and-deferred rates under current
regulations. For plans that refer generally to PBGC's lump sum interest
rates or the rates PBGC uses, commenters said that there could be
administrative costs associated with implementing processes and
procedures, updating systems for administering benefits, and
communicating with participants, but did not quantify these costs. The
costs will be contingent on plans' individual circumstances and plan
sponsors' responses to these changes.
Section 6 of Executive Order 13563 requires agencies to rethink
existing regulations by periodically reviewing their regulatory program
for rules that ``may be outmoded, ineffective, insufficient, or
excessively burdensome.'' These rules should be modified, streamlined,
expanded, or repealed as appropriate. PBGC has identified the
assumptions used for lump sums in its benefit payments regulation as
outmoded and the
[[Page 55591]]
amendment to discontinue publication of these assumptions as consistent
with the principles for review under Executive Order 13563.
Regulatory Flexibility Act
The Regulatory Flexibility Act imposes certain requirements with
respect to rules that are subject to the notice-and-comment
requirements of section 553(b) of the Administrative Procedure Act and
that are likely to have a significant economic impact on a substantial
number of small entities. Unless an agency determines that a rule is
not likely to have a significant economic impact on a substantial
number of small entities, section 604 of the Regulatory Flexibility Act
requires that the agency present a final regulatory flexibility
analysis at the time of the publication of the final rule describing
the impact of the rule on small entities and seeking public comment on
such impact. Small entities include small businesses, organizations,
and governmental jurisdictions.
For purposes of the Regulatory Flexibility Act requirements with
respect to this final rule, PBGC considers a small entity to be a plan
with fewer than 100 participants. This is substantially the same
criterion PBGC uses in other regulations \11\ and is consistent with
certain requirements in title I of ERISA \12\ and the Code,\13\ as well
as the definition of a small entity that the Department of Labor has
used for purposes of the Regulatory Flexibility Act.\14\
---------------------------------------------------------------------------
\11\ See, e.g., special rules for small plans under part 4007
(Payment of Premiums).
\12\ See, e.g., section 104(a)(2) of ERISA, which permits the
Secretary of Labor to prescribe simplified annual reports for
pension plans that cover fewer than 100 participants.
\13\ See, e.g., section 430(g)(2)(B) of the Code, which permits
plans with 100 or fewer participants to use valuation dates other
than the first day of the plan year.
\14\ See, e.g., DOL's final rule on Prohibited Transaction
Exemption Procedures, 76 FR 66,637, 66,644 (Oct. 27, 2011).
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Further, while some large employers operate small plans along with
larger ones, in general, most small plans are maintained by small
employers. Thus, PBGC believes that assessing the impact of the final
rule on small plans is an appropriate substitute for evaluating the
effect on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business based on size standards promulgated by the Small
Business Administration (13 CFR 121.201) pursuant to the Small Business
Act. PBGC requested comments on the appropriateness of the size
standard used in evaluating the impact of the proposed rule on small
entities. PBGC did not receive any such comments.
On the basis of its definition of small entity, PBGC certifies
under section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.) that the amendments in this rule will not have a significant
economic impact on a substantial number of small entities because this
rule primarily impacts participants in PBGC-trusteed plans. In
addition, commenters confirmed that relatively few plans of any size
use PBGC's legacy interest rates to calculate lump sums. Therefore, it
is unlikely that the rule will significantly impact a substantial
number of small plans. Accordingly, as provided in section 605 of the
Regulatory Flexibility Act, sections 603 and 604 do not apply.
List of Subjects in 29 CFR Part 4022
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
For the reasons given above, PBGC is amending 29 CFR part 4022 as
follows:
PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS
0
1. The authority citation for part 4022 continues to read as follows:
Authority: 29 U.S.C 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.
0
2. Amend Sec. 4022.7 by revising paragraphs (d)(2) and (e) to read as
follows:
Sec. 4022.7 Benefits payable in a single installment.
* * * * *
(d) * * *
(2) Actuarial assumptions. PBGC will calculate the lump sum value
of a benefit by valuing the monthly annuity benefits payable in the
form determined under Sec. 4044.51(a) of this chapter and commencing
at the time determined under Sec. 4044.51(b) of this chapter. The
actuarial assumptions used will be those described in Sec. 4044.52 of
this chapter, except as follows:
(i) Loading for expenses. There will be no adjustment to reflect
the loading for expenses.
(ii) Mortality assumption. The ``applicable mortality table''
specified in section 205(g)(3)(B)(i) of ERISA and section 417(e)(3)(B)
of the Code for the year containing the termination date will apply.
(iii) Interest rate assumption. The ``applicable interest rate''
specified in section 205(g)(3)(B)(ii) of ERISA and section 417(e)(3)(C)
of the Code for the month containing the termination date will apply.
(iv) Date for determining lump sum value. The date as of which a
lump sum value is calculated is the termination date, except that in
the case of a subsequent insufficiency it is the date described in
section 4062(b)(1)(B) of ERISA.
(e) Private-sector lump sum rates. PBGC provides lump sum interest
rates for private-sector payments in appendix C to this part.
Appendix A to Part 4022--[Removed and Reserved]
0
3. Remove and reserve appendix A.
Appendix B to Part 4022--[Removed and Reserved]
0
4. Remove and reserve appendix B.
0
5. Revise appendix C to read as follows:
Appendix C to Part 4022--Lump Sum Interest Rates for Private-Sector
Payments
[In using this table:
(1) To determine the applicable rate set for any given month (month
x), use the applicable 12-year rate for the second preceding month
(month x-2) to find the corresponding rate set. The applicable 12-year
rate for the second preceding month is the 12-year rate from the
corporate bond yield curve described in section 430(h)(2)(D)(ii) of the
Code determined without regard to 24-month averaging for the second
month preceding the month of the desired applicable rate set.
(2) For benefits for which the participant or beneficiary is
entitled to be in pay status on the valuation date, the immediate
annuity rate shall apply.
(3) For benefits for which the deferral period is y years (where y
is an integer and 0 < y <= 7), interest rate i1 shall apply
from the valuation date for a period of y years; thereafter the
immediate annuity rate shall apply.
(4) For benefits for which the deferral period is y years (where y
is an integer and 7 < y <= 15), interest rate i2 shall apply
from the valuation date for a period of y-7 years; interest rate
i1 shall apply for the following 7 years; thereafter the
immediate annuity rate shall apply.
(5) For benefits for which the deferral period is y years (where y
is an integer and y > 15), interest rate i3 shall apply from
the valuation date for a period of y-15 years; interest rate
i2 shall apply for the following 8 years; interest rate
i1 shall apply for the following 7 years; thereafter the
immediate annuity rate shall apply.]
[[Page 55592]]
For Plans With a Valuation Date On or After January 1, 2021
----------------------------------------------------------------------------------------------------------------
Applicable rate set for month x
---------------------------------------------------------------
Applicable 12-year rate for month x-2 (percent) Immediate Deferred annuity rates (percent)
annuity rate -----------------------------------------------
(percent) i1 i2 i3
----------------------------------------------------------------------------------------------------------------
Below 3.18...................................... 0.00 4.00 4.00 4.00
3.18 to 3.40.................................... 0.25 4.00 4.00 4.00
3.41 to 3.63.................................... 0.50 4.00 4.00 4.00
3.64 to 3.87.................................... 0.75 4.00 4.00 4.00
3.88 to 4.10.................................... 1.00 4.00 4.00 4.00
4.11 to 4.34.................................... 1.25 4.00 4.00 4.00
4.35 to 4.57.................................... 1.50 4.00 4.00 4.00
4.58 to 4.81.................................... 1.75 4.00 4.00 4.00
4.82 to 5.04.................................... 2.00 4.00 4.00 4.00
5.05 to 5.28.................................... 2.25 4.00 4.00 4.00
5.29 to 5.51.................................... 2.50 4.00 4.00 4.00
5.52 to 5.75.................................... 2.75 4.00 4.00 4.00
5.76 to 5.98.................................... 3.00 4.00 4.00 4.00
5.99 to 6.22.................................... 3.25 4.00 4.00 4.00
6.23 to 6.46.................................... 3.50 4.00 4.00 4.00
6.47 to 6.69.................................... 3.75 4.00 4.00 4.00
6.70 to 6.93.................................... 4.00 4.00 4.00 4.00
6.94 to 7.16.................................... 4.25 4.00 4.00 4.00
7.17 to 7.40.................................... 4.50 4.00 4.00 4.00
7.41 to 7.64.................................... 4.75 4.00 4.00 4.00
7.65 to 7.87.................................... 5.00 4.25 4.00 4.00
7.88 to 8.11.................................... 5.25 4.50 4.00 4.00
8.12 to 8.35.................................... 5.50 4.75 4.00 4.00
8.36 to 8.58.................................... 5.75 5.00 4.00 4.00
8.59 to 8.82.................................... 6.00 5.25 4.00 4.00
8.83 to 9.06.................................... 6.25 5.50 4.25 4.00
9.07 to 9.30.................................... 6.50 5.75 4.50 4.00
9.31 to 9.53.................................... 6.75 6.00 4.75 4.00
9.54 to 9.78.................................... 7.00 6.25 5.00 4.00
9.79 to 10.02................................... 7.25 6.50 5.25 4.00
Above 10.02..................................... 7.50 6.75 5.50 4.00
----------------------------------------------------------------------------------------------------------------
Issued in Washington, DC.
Gordon Hartogensis,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2020-19610 Filed 9-8-20; 8:45 am]
BILLING CODE 7709-02-P
