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Pension Resource

29 C.F.R. § 4022.63

Estimated asset-funded benefit.
eCFR amendment effective 2018-10-03 · superseded Nov 2, 2018 · last amended by 76 FR 34604, June 14, 2011
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Link to an amendment published at 83 FR 49805, Oct. 3, 2018.
(a) General. If the conditions specified in paragraph (b) exist, the plan administrator shall determine each participant's estimated title IV benefit. The estimated title IV benefit payable with respect to each participant who is not a substantial owner is computed under paragraph (c) of this section. The estimated title IV benefit payable with respect to each participant who is a substantial owner is computed under paragraph (d) of this section.
(b) Conditions for use of this section. The conditions set forth in this paragraph must be satisfied in order to make use of the procedures set forth in this section. If the specified conditions exist, estimated title IV benefits must be determined in accordance with these procedures (or in accordance with alternative procedures authorized by the PBGC under § 4022.61(f)) for each participant and beneficiary whose benefit under the plan exceeds the limitations contained in § 4022.61(b) or (c) or who is a substantial owner or the beneficiary of a substantial owner. If the specified conditions do not exist, title IV benefits may be estimated by the plan administrator in accordance with procedures authorized by the PBGC, but no such estimate is required. The conditions are as follows:
(1) An actuarial valuation of the plan has been performed for a plan year beginning not more than eighteen months before the proposed termination date. If the interest rate used to value plan liabilities in this valuation exceeded the applicable valuation interest rates and factors under appendix B to part 4044 of this chapter in effect on the proposed termination date, the value of benefits in pay status and the value of vested benefits not in pay status on the valuation date must be converted to the PBGC's valuation rates and factors.
(2) The plan has been in effect for at least five full years before the proposed termination date, and the most recent actuarial valuation demonstrates that the value of plan assets, reduced by employee contributions remaining in the plan and interest credited thereon under the terms of the plan, exceeds the present value, adjusted as required under paragraph (b)(1), of all plan benefits in pay status on the valuation date.
(3) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy termination, “bankruptcy filing date” is substituted for “proposed termination date” in the first sentence of paragraph (b)(2) of this section.
(c) In general - (1) Estimated title IV benefit payable with respect to a participant who is not a substantial owner. For benefits payable with respect to a participant who is not a substantial owner, the estimated title IV benefit is the estimated priority category 3 benefit computed under this paragraph. Priority category 3 benefits are payable with respect to participants who were, or could have been, in pay status three full years prior to the proposed termination date. The estimated priority category 3 benefit is computed by multiplying the benefit payable with respect to the participant under § 4022.62 (b)(1) and (b)(2) by a fraction, not to exceed one -
(i) The numerator of which is the benefit that would be payable with respect to the participant at normal retirement age under the provisions of the plan in effect on the date five full years before the proposed termination date, based on the participant's age, service, and compensation as of the earlier of the participant's benefit commencement date or the proposed termination date, and
(ii) The denominator of which is the benefit that would be payable with respect to the participant at normal retirement age under the provisions of the plan in effect on the proposed termination date, based on the participant's age, service, and compensation as of the earlier of the participant's benefit commencement date or the proposed termination date.
(2) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy termination, “bankruptcy filing date” is substituted for “proposed termination date” each place that “proposed termination date” appears in paragraph (c)(1) of this section.
(d) Estimated title IV benefit payable with respect to a substantial owner. For benefits payable with respect to a participant who is a substantial owner, the estimated title IV benefit is the higher of the benefit computed under paragraph (c) of this section or the benefit computed under this paragraph.
(1) The plan administrator shall first calculate the estimated guaranteed benefit payable with respect to the substantial owner as if he or she were not a substantial owner, using the method set forth in § 4022.62(c).
(2) The benefit computed under paragraph (d)(1) shall be multiplied by the priority category 4 funding ratio. The category 4 funding ratio is the ratio of x to y, not to exceed one, where -
(i) In a plan with priority category 3 benefits, x equals plan assets minus employee contributions remaining in the plan on the valuation date, with interest credited thereon under the terms of the plan, and the present value of benefits in pay status, and y equals the present value of all vested benefits not in pay status minus such employee contributions and interest; or
(ii) In a plan with no priority category 3 benefits, x equals plan assets minus employee contributions remaining in the plan on the valuation date, with interest credited thereon under the terms of the plan, and y equals the present value of all vested benefits minus such employee contributions and interest.
(e) Examples. This section is illustrated by the following examples:
Example 1. Facts.

A participant who is not a substantial owner was eligible to retire 3 1/2 years before the proposed termination date. The participant retired 2 years before the proposed termination date with 20 years of service. Her final 5 years' average salary was $45,000, and she was entitled to an unreduced early retirement benefit of $1,500 per month payable as a single life annuity. This retirement benefit does not exceed the limitation in § 4022.61 (b) or (c).

On the participant's benefit commencement date, the plan provided for a normal retirement benefit of 2 percent of the final 5 years' salary times the number of years of service. Five years before the proposed termination date, the percentage was 1 1/2 percent. The amendments improving benefits were put into effect 3 1/2 years prior to the proposed termination date. There were no other amendments during the 5-year period.

The participant's estimated guaranteed benefit computed under § 4022.62(c) is $1,500 per month times 0.90 (the factor from column (b) of Table I in § 4022.62(c)(2)), or $1,350 per month. It is assumed that the plan meets the conditions set forth in paragraph (b) of this section, and the plan administrator is therefore required to estimate the title IV benefit.

Estimated title IV benefit. For a participant who is not a substantial owner, the amount of the estimated title IV benefit is the estimated priority category 3 benefit computed under paragraph (c) of this section. This amount is computed by multiplying the participant's benefit under the plan as of the later of the proposed termination date or the benefit commencement date by the ratio of (i) the normal retirement benefit under the provisions of the plan in effect 5 years before the proposed termination date and (ii) the normal retirement benefit under the plan provisions in effect on the proposed termination date.

Thus, the numerator of the ratio is the benefit that would be payable to the participant under the normal retirement provisions of the plan 5 years before the proposed termination date, based on her age, service, and compensation on her benefit commencement date. The denominator of the ratio is the benefit that would be payable to the participant under the normal retirement provisions of the plan in effect on the proposed termination date, based on her age, service, and compensation as of the earlier of her benefit commencement date or the proposed termination date. Since the only different factor in the numerator and denominator is the salary percentage, the amount of the estimated title IV benefit is $1,125 (0.015/0.020 × $1,500) per month. This amount is less than the estimated guaranteed benefit of $1,350 per month. Therefore, in accordance with § 4022.61(d), the benefit payable to the participant is $1,350 per month.

PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy termination, the methodology would be the same, but “bankruptcy filing date” would be substituted for “proposed termination date” each place that “proposed termination date” appears in the example, and the numbers would change accordingly.
Example 2. Facts.

A participant who is a substantial owner retires at the plan's normal retirement age, having completed 5 years of active participation in the plan, on October 31, 1992, which is the proposed termination date. Under provisions of the plan in effect 5 years prior to the proposed termination date, the participant is entitled to a single life annuity of $500 per month. Under the most recent plan amendments, which were put into effect 1 1/2 years prior to the proposed termination date, the participant is entitled to a single life annuity of $1,000 per month. The participant's estimated guaranteed benefit computed under § 4022.62(d)(2) is $166.67 per month.

It is assumed that all of the conditions in paragraph (b) of this section have been met. Plan assets equal $2 million. The present value of all benefits in pay status is $1.5 million based on applicable PBGC interest rates. There are no employee contributions and the present value of all vested benefits that are not in pay status is $0.75 million based on applicable PBGC interest rates.

Estimated title IV benefit. Paragraph (d) of this section provides that the amount of the estimated title IV benefit payable with respect to a participant who is a substantial owner is the higher of the estimated priority category 3 benefit computed under paragraph (c) of this section or the estimated priority category 4 benefit computed under paragraph (d) of this section.

Under paragraph (c), the participant's estimated priority category 3 benefit is $500 ($1,000 × $500/$1,000) per month.

Under paragraph (d), the participant's estimated priority category 4 benefit is the estimated guaranteed benefit computed under § 4022.62(c) (i.e., as if the participant were not a substantial owner) multiplied by the priority category 4 funding ratio. Since the plan has priority category 3 benefits, the ratio is determined under paragraph (d)(2)(i). The numerator of the ratio is plan assets minus the present value of benefits in pay status. The denominator of the ratio is the present value of all vested benefits that are not in pay status. The participant's estimated guaranteed benefit under § 4022.62(c) is $1,000 per month times 0.90 (the factor from column (b) of Table I in § 4022.62(c)(2)), or $900 per month. Multiplying $900 by the category 4 funding ratio of 2/3 (($2 million - $1.5 million)/$0.75 million) produces an estimated category 4 benefit of $600 per month.

Because the estimated category 4 benefit so computed is greater than the estimated category 3 benefit so computed, the estimated category 4 benefit is the estimated title IV benefit. Because the estimated category 4 benefit so computed is greater than the estimated guaranteed benefit of $166.67 per month, in accordance with § 4022.61(d), the benefit payable to the participant is the estimated category 4 benefit of $600 per month.

Source credit, amendments & notes

[61 FR 34028, July 1, 1996; 61 FR 36626, July 12, 1996, as amended at 76 FR 34604, June 14, 2011]

29 C.F.R. § 4022.63 — Estimated asset-funded benefit. · eCFR amendment effective 2018-10-03 · https://pensionresource.website/EAMain?content=EAMain.Law&id=cfr29-4022.63&asof=2018-10-03 · printed Oct 16, 2026
On this page
  • (a) General.
  • (b) Conditions for use of this section.
  • (c) (c) In general - (1) Estimated title IV benefit payable wit…
  • (d) Estimated title IV benefit payable with respect to a substa…
  • (e) Examples.
Implements
ERISA § 4022 (29 U.S.C. § 1322) Single-employer plan benefits guaranteed
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Also cited in 5 other documents
PBGC
Final Rules
  • 89 FR 48291 Jun 6, 2024 — Valuation Assumptions and Methods
  • 83 FR 49799 Oct 3, 2018 — Owner-Participant Changes to Guaranteed Benefits and Asset Allocation (d)(2)
  • 76 FR 34590 Jun 14, 2011 — Bankruptcy Filing Date Treated as Plan Termination Date for Certain Purposes; Guaranteed Benefits; Allocation of Plan Assets; Pension Protection Act of 2006
Proposed Rules
  • 88 FR 56563Proposed Aug 18, 2023 — Valuation Assumptions and Methods Comments due Oct 17, 2023
  • 83 FR 9716Proposed Mar 7, 2018 — Owner-Participant Changes to Guaranteed Benefits and Asset Allocation Comments due May 7, 2018 (d)(2)

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Each row is a version of the text as published by the official source. Code dates are the edition/release point that first reflected the change; regulation dates are eCFR effective dates. The library checks the official sources automatically, so new versions appear here on their own; “run” opens the sync that recorded a version.

EffectiveThroughSourceAmended by
Jul 1, 1997Jun 30, 2011CFR 2010 annual edition (revised as of 2010-07-01) run 12761 FR 36626, July 12, 1996View
Jul 1, 2011Jun 30, 2012CFR 2011 annual edition (revised as of 2011-07-01) run 12761 FR 36626, July 12, 1996View · Redline (sign in)
Jul 1, 2012Aug 31, 2017eCFR amendment effective 2017-01-01 run 776 FR 34604, June 14, 2011View · Redline (sign in)
Sep 1, 2017Aug 19, 2018eCFR amendment effective 2017-09-01 run 776 FR 34604, June 14, 2011View · Redline (sign in)
Aug 20, 2018Oct 2, 2018eCFR amendment effective 2018-08-20 run 776 FR 34604, June 14, 2011View · Redline (sign in)
Oct 3, 2018Nov 1, 2018eCFR amendment effective 2018-10-03 run 776 FR 34604, June 14, 2011View · Redline (sign in)
Nov 2, 2018Jun 5, 2024eCFR editorial change effective 2018-11-02 run 783 FR 49805, Oct. 3, 2018View · Redline (sign in)
Jun 6, 2024Jul 7, 2024eCFR amendment effective 2024-06-06 run 783 FR 49805, Oct. 3, 2018View · Redline (sign in)
Jul 8, 2024currenteCFR amendment effective 2024-07-08 run 289 FR 48299, June 6, 2024View · Redline (sign in)
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