Transcript Northern Virginia Regional Park Authority

Pension Protection Act of 2006
(PPA)
Overview:
Sweeping Changes for
Defined Benefit Pension Plans
Presented by
David S. Boomershine, Senior Actuary
Boomershine Consulting Group, LLC
Agenda
• Pension Protection Act
- Funding Rules
- Other
• Financial Accounting Standards 158
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PPA Funding Rules
• Funding Target Achievement Percentage (FTAP)
• Asset Valuation
• Revised Interest Rate Basis
• Mortality Tables
• Minimum Contributions
• Credit Balance options
• Maximum Deductible Contributions
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PPA Funding Rules
Funding Target Achievement Percentage (FTAP)
• Funding Target: 100% of Present Value of Accrued Benefits
• Transition: 92%/2008
94%/2009
96%/2010
- If no Deficit Reduction Contribution in 2007
• Use revised required assumption basis
Asset Valuation
Options allowed:
• Fair Market Value (FMV)
• Smoothed investment returns – over 24 months
- Smoothed value must be between 90% - 110% of FMV
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100%/2011
PPA Funding Rules
Revised Interest Rate Basis
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Yield curve: 3 segments
3 segments: 5 years / 15 years / 20+ years
Based on 24-month average of quality corporate bonds
Alternative: full yield curve
Transition: 2008 – 2010
Mortality Tables
• 2007: Based on RP 2000 table – projected
• 2008: Prescribed by Secretary of the Treasury
- Actual plan-specific experience (if large plan)
- Also use projected trends
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PPA Funding Rules
Minimum Required Contributions
• Adjusted Assets – reduced by Credit Balance
• Minimum Required Contribution (MRC):
Target Normal Cost
+
Shortfall Amortization Charge
• Shortfall Amortization Charge
- Shortfall: 100% of Funding Target* - Adjusted Asset Value (i.e.
Unfunded Actuarial Liability)
- Amortize over 7 year period
*Note: Transition targets
• MRC may be reduced by Credit Balance, if FTAP > 80%
• “At Risk” Plans – FTAP < 80% (transition rules apply): Accelerated
funding requirements
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PPA Funding Rules
Credit Balances (CB)
• 2 Types:
- Carryover Balance (COB) – old
- Prefunding Balance (PFB) – new
• 3 Primary Approaches:
- Maintain CB, keep future funding flexibility
- Use CB, towards Minimum Required Contributions
- “Burn” CB, to increase Funded Ratio
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PPA Funding Rules
Maximum Deductible Contributions
• For 2008:
Funding Target (FT) - Assets
+
Normal Cost
+
Cushion = 50% of FT, plus “allowance”
• Concern: Overfunded Plans?
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Other PPA Issues
• Benefit Limitations
• Benefit Distributions
• PBGC Premiums
• Disclosure Requirements
• Hybrid Plans
• Phased Retirement
• Combination DB/K Plans
• Governmental DB Plans
• Multi Employer DB Plans
• Non-qualified Deferred Compensation Plans
• Overfunded Plans/Section 420 Transfers
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Other PPA Issues
Benefit Limitations
• Funded less than 80%
- No benefit increases
- Partial restriction on lump sums
• Funded less than 60%
- Frozen benefit accruals
- No lump sums
- No shutdown benefits
• Credit Balances must be “burned” to avoid lump sum restrictions - ?
• No Credit Balance offset required for these determinations - ?
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Other PPA Issues
Benefit Distributions
For Lump Sums:
• For 2008: Revised interest rate basis: 3 segments
• Phased in 20%/year – by 2012
• Mortality table
• Minimum lump sums
Also, must offer 75% Qualified Optional Survivor Annuity
PBGC Premiums
• For 2007: Exemption for Variable Rate Premium due to meeting
Full Funding Limitation has been eliminated
• Variable Rate Premium applies if less than 100% funded
• Interest rate revised
• Use Market Value of Assets
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Other PPA Issues
Disclosure Requirements
• Pension Benefit Statements – Options:
- At least once every 3 years: due 2009 plan year
- Annual notice that statements are available upon request – due 2007
• 2008 Funding Notice: Replaces Summary Annual Report
- Target Attainment Percentage (Funded Status)
- Assets
- Liabilities
- Participant counts
- Plan’s funding policy
- Asset Allocation
- Amendments and material events
- Due 120 days after end of Plan Year
• PBGC Filing required if under 80% funded – with Participant Notice
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Other PPA Issues
Hybrid Plans (Cash Balance)
• “New Age” Discrimination Testing
• Comparison based on:
- Annuity
- Account Balance
- % of pay
• Some past hybrid design issues resolved prospectively (Whipsaw)
• Interest credit – not greater than market rate of return
• Vesting: 3 years of service
• More viable plan design option now?
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Other PPA Issues
• Phased Retirement
- In-service distributions allowed at age 62
• DB/K Plans: In 2010
- Single Plan may provide for DB and 401(k) benefits – if
under 501 participants
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Additional Note:
Financial Accounting Standards No. 158
• FASB 2-phase project: revamp standards
• FAS 158 – Phase 1:
- Asset/liability on financial balance sheet now based on
Projected Benefit Obligation (PBO) vs. Accumulated Benefit
Obligation (ABO)
• Impact: dramatically increases liabilities on balance sheets
• No impact on annual Net Expense
• Generally effective for fiscal years ending after 12/15/2006
• Measurement Date must now be last day of fiscal year –
effective 12/15/2008
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Questions?
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