Assets to use for 4010 filing vs Variable Premium Calc

[Tdot]

The 4010 filing instructions on the PBGC website reference ERISA section 4006.4 for instructions on how to calculate the unfunded vested benefits. From what I can tell in there and from what was seen on the 2003 exam Question 13, market value (not Actuarial value) of assets are used. Since 4006.4 is really the instructions for how to calculate unfunded vested benefits for the variable premium, it would seem to me that market value would be used for that too. However the 2004 (2 questions test this issue) exam uses Actuarial value and the PBGC Schedule A instructions use the Actuarial Value.
Does anyone understand this inconsistency?

[Mr. BoH]

There are actually 3 different ways to calculate 4010 unfunded liability.

(1) using the general method used to calculate the PBGC's variable rate premium,
(2) using the alternative calculation method used to calculate the PBGC's variable rate premium, or
(3) using the general method with the optional assumptions described in the Section 4010 regulations

(See Q9 here: http://www.pbgc.gov/laws/techupdates/TECH96-3.htm)

For liabilities, (1) and (2) use an interest rate of 85% of 30-yr Treas, while (3) uses 100% of the 30-yr Treas. Since 2003 #13 only gives you liability based on 100% of the 30-yr Treas, you must use (3) to calculate 4010 unfunded liability.

Part 4010.4(b)(2)(ii) states that the "optional assumptions" from (3) above uses market value. http://www.pbgc.gov/laws/lawsregs/code/CFR4010.HTM

(1) and (2) for both 4010 and VRP calculations use Actuarial Asset Value (with the exception of ACM with Val date <> 1st day of PY, such as 2002 #33).

[Malik Shabazz]

I haven't reviewed the regs or the instructions so don't take my word for it, but...

Isn't the use of MVA vs. AVA on Schedule A related to the use of the general method vs. the alternative method?

[Mr. BoH]

Originally Posted by Malik Shabazz

I haven't reviewed the regs or the instructions so don't take my word for it, but...

Isn't the use of MVA vs. AVA on Schedule A related to the use of the general method vs. the alternative method?

I don't think so. General and Alternative both always use AAV, except in that special case when the Val date is not the first day of the Plan Year (usually due to an EOY valuation).

[Tdot]

Thanks Mr. Boh. You have been very helpful with my questions. The asset reversion question I would have never found, but I knew the answer you listed above at one point in my life. I just got myself turned around trying to read the Code/Regs/ERISA.

[Malik Shabazz]

Originally Posted by Mr. BoH

I don't think so. General and Alternative both always use AAV, except in that special case when the Val date is not the first day of the Plan Year (usually due to an EOY valuation).

Thanks for the clarification. I probably shouldn't have responded without checking that I was right.