Present Value of the Maximum PBGC Guaranteed Benefit under IRC Section 436(d)(3)(A)(ii) and ERISA Section 206(g)(3)(C)(i)(II)

Section 103(a) of the Pension Protection Act of 2006 (PPA 2006) limits the amount of benefits that ongoing plans can pay in prohibited payment forms (e.g., a lump sum) in certain situations.  On August 31, 2007 (at 72 FR 50544), Treasury published a proposed rule on “Benefit Restrictions for Underfunded Pension Plans.”  This proposed rule provides guidance on the IRC section 436 benefit restrictions, including the definition of “prohibited payment” and the relevant effective dates.

IRC section 436(d)(3) and ERISA section 206(g)(3)(C) provide that if the “adjusted funding target attainment percentage” is at least 60% but less than 80%, a plan may not pay a prohibited payment to the extent the payment exceeds the lesser of:

(1)     50% of the amount of the payment that would be paid if the restriction did not apply, or

(2)     the present value, determined under guidance provided by PBGC, of the maximum guarantee with respect to the participant under ERISA section 4022. 

The following table provides the amounts under (2) for calendar year 2008.  These values apply to benefits with annuity starting dates in 2008.  The 2008 table was developed using the 417(e) segment rates for August 2007 (5.02%, 5.18% and 5.28% respectively) and the 417(e) applicable mortality table for 2008 provided in IRS Revenue Ruling 2007-67. See Technical Update 07-4 for more information, including the methodology used to develop this table.