On August 18th 2023, the Pension Benefit Guaranty Corporation (PBGC) issued a proposed update to its rule regarding valuation assumptions and methods and an accompanying Request for Comment.
This proposed rule would “update the actuarial assumptions used to determine the present value of a single-employer plan's benefits when it terminates in a distress or involuntary termination, to determine the present value of multiemployer plan benefits in certain withdrawal liability calculations, and for other purposes”. The rule contains an update to the mortality assumptions used, with the stated aim “to produce annuity valuations similar to those produced by private-sector insurers”. Given Club Vita’s expertise in this area, we responded to the proposal.
Our response can be read in full here: Club Vita’s response to proposed PBGC rule update – October 2023
In summary
- We recognize and commend the aim to update mortality assumptions in the new rules to better align with private sector insurers.
- We commend the proposal to introduce generational mortality assumptions as recognized leading practice both in the pension and insurance industries.
- We recognize the update to the base mortality assumptions in the rules from GAM-94 to Pri-2012 significantly modernizes the base mortality assumptions.
- However, we feel more could be done to modernize and align assumptions with the insurance industry – by either allowing for the use of multi-factor (also known as augmented) baseline mortality assumption for valuation purposes, or using such models to regularly assess the appropriateness of the proposed assumptions.