MAP-ping Out Your Pension Plans Future

How Funding Relief (MAP-21) Affects Your Plan Financially

August 21, 2012 Matt Avery FSA, EA, MAAA Director of Actuarial Services Atssa Benefits, Inc. www.atessabenefits.com

Agenda
Pension Funding Relief under MAP-21 PBGC Premium Increases under MAP-21 Other MAP-21 Impacts Pension Case Study Planning for the Future

Pension Funding Relief under MAP-21

The Pension Protection Act of 2006 (PPA) requires pension plans to use market interest rates to determine plan liabilities. The majority of plan sponsors use segment rates to value pension liabilities. MAP-21 provides relief to current low interest rate environment. MAP-21 optional for 2012, but required for 2013 and beyond.

Pension Funding Relief under MAP-21

Current segment rates compared to 25-year average of spot rates 25-year average then limited by min/max boundaries
Year 2012 2013 2014 2015 After 2015 Minimum/Maximum 90%/110% 85%/115% 80%/120% 75%/125% 70%/130%
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Pension Funding Relief under MAP-21

Example (Assume the following):
1st Segment Rate for 2012 is 2% 25 year average of short term spot rates is 6%

Applying the 90% minimum for 2012, the estimated floor for the first segment rate would be 90% of 6%, or 5.4%

Therefore the actual first segment rate of 2% is limited to 5.4% for 2012

Pension Funding Relief under MAP-21

*Projected based on adjusted 24 month average rates published by IRS on 8/16/2012

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Pension Funding Relief under MAP-21

Relief Does Not Apply to the Following Liability Calculations:
Maximum deductible contribution amounts Plan lump sum calculations Excess assets for retiree health plan transfers PBGC variable rate premium amounts PBGC reportable events

PBGC Premiums under MAP-21

Flat rate premium currently $35 per participant for 2012
Increased to $42 for 2013 and $49 for 2014 and beyond Further inflation increases after 2014 (TBD)

Variable rate premium currently at 0.9% of unfunded vested benefits.

Increased to 1.3% for 2014 and 1.8% for 2015 and beyond Further inflation increases after 2015 (TBD)

Other MAP-21 Impacts

Additional Disclosures for Annual Funding Notice
Statement of use of modified interest rates Statement that plan sponsors may contribute less Table comparing pre/post MAP-21 funding requirements DOL to issue model notice

Transfers of excess assets to fund retiree group term life insurance

Polling Question
Given that the MAP-21 funding Relief is optional for 2012 only, will you elect the relief for this year? Yes No Unsure

Pension Case Study Planning for the Future

XYZ Corporation sponsors the XYZ Corp. Pension Plan Frozen defined benefit plan with 400 participants Overall goal prior to relief is to maintain 80% funded on a PPA basis XYZ Corp. Pension Plan Valuation Assumptions
Funding Interest Rate - PPA segment rates (subject to MAP-21 relief) Projected Annual Investment Return of 5% FAS Discount Rate of 4.5% FAS Expected Return on Assets (EROA) of 5.5%

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Pension Case Study Planning for the Future

BEFORE MAP-21

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Pension Case Study Planning for the Future

XYZ Corp. Pension Plan 2012 Valuation BEFORE MAP-21
Funded Status (AFTAP) is 80% ERISA Minimum Required Contribution (MRC) of $1.3 million FAS expense of $935k PBGC Premiums of $73k

How will MAP-21 impact the 2012 results?

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Pension Case Study Planning for the Future

AFTER MAP-21

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Pension Case Study Planning for the Future

XYZ Corp. Pension Plan 2012 Valuation AFTER MAP-21
Funded Status (AFTAP) is 90% (10% increase) ERISA MRC of $772k (over $500k decrease, or 40%) FAS expense of $941k ($6k increase, or 1%) PBGC Premiums of $73k (unchanged)

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Pension Case Study Planning for the Future

XYZ Corp. Pension Plan 5 Year Projections Pre MAP-21
Investment return assumption of 5% per year Total 2012 2017 ERISA MRCs $11.6 million Total 2012 2017 FAS expense of $4.4 million Total 2012 2017 PBGC Premiums of $465k

How will MAP-21 impact plan estimates for 2012 - 2017?

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Pension Case Study Planning for the Future

XYZ Corp. Pension Plan 5 Year Projections* AFTER MAP-21
Total 2012 2017 ERISA MRC $9.2 million (about $2.4 million decrease, or 26%) Total 2012 2017 FAS expense of $4.9 million (about $450k increase, or 9%) Total 2012 2017 PBGC Premiums of $718k (over $250k increase, or 35%)

*Projected based on adjusted 24 month average rates published by IRS on 8/16/2012

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Pension Case Study Planning for the Future

Other considerations for XYZ Corp. Pension Plan
Use savings outside of the pension plan? Funding sooner for pre MAP-21 budgets? Changing investment allocations? Maintaining 80% funded ratio ignoring MAP-21?

Planning ahead is critical to take full advantage of relief

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Questions??
Matt Avery FSA, EA, MAAA Director of Actuarial Services Atssa Benefits, Inc. mavery@atessabenefits.com 858.673.3691 x123 www.atessabenefits.com

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