Interesting SFA Rate Blunders

In comparing how much bailout money insolvent multiemployer plans are asking from the government to what they reported as unfunded liabilities on their latest 5500 filings some substantial differences come to light. Now that most of the applications are online and the interest rates used for valuing SFA liabilities have been divulged the idiocy of the method the PBGC forces these plans to use comes into focus.

Here is a listing of those 20 plans with what they requested, what they reported as their unfunded liabilities using RPA rates (about 3%), the percentage of that unfunded liability that the requested bailout would cover, and the interest rate used to calculate the SFA liabilities that the request was based on.

These plans are insolvent which means that money going in goes right out leaving no possibility of any trust earnings. The correct interest rate for valuing liabilities in an ongoing insolvent plan would be 0%. However, only one plan (Carpenters Industrial Council of Eastern PA) had the foresight to use a 0% interest rate in their valuations. Or did they?

There are two major blunders here.

First, these bailouts will be paid in a lump sum. It does not matter what past valuation interest rates were but rather what the rate will be that these plans expect to earn in the future on the money they will be getting. Past earnings history means nothing when you had no earnings.

Secondly, the Carpenters Industrial Council of Eastern PA Pension Plan should probably have used a 6.5% interest rate in their SFA filing and they are essentially requesting $9 million more than they are entitled to under these absurd rules. Comparing their Schedule MB filings for the 2018 and 2019 plan years it is true that item 6d on page 3 of the 2019 filing reports 0% as the valuation interest rate but that is because it was left blank as were items 6g and 6h on that form. It was a mistake. On the 2018 MB the valuation rate reported was 6.5% and the liability values for both years were similar ($6,890,586 for 2018 and $6,509,291 for 2019). It was a careless (unintentional?) error that might never get discovered if these turn out to be rubber stamp approvals.

5 responses to this post.

  1. Posted by Ray Shorter on October 28, 2021 at 8:39 pm

    Why didn’t Pbgc give more guidance to avoid these blunders? And do these blunders slow the approval process and help group 2 to avoid same blunders?

    Reply

    • Posted by aon12345 on November 9, 2021 at 9:31 am

      Don’t worry Ray, there were no blunders made and the PBGC provided plenty of guidance to ensure the filings would be done correctly.

      Reply

  2. Posted by aon12345 on November 8, 2021 at 10:59 am

    The only blunders here are by the author who is making careless (intentional??) errors to disinform the readers and promote his lack of knowledge in the subject area. He obviously does not know how to read a schedule b as the one that is filed is correct and he is just making stuff up – he should likely be sent to the ABCD which I guess I will have to look into.

    He also mentions the idiocy of the PBGC – it is important to actually know the facts. The law was created by Congress and not the PBGC. Makes me wonder what is going on with the author that they don’t even realize how laws are created in this country.

    Reply

  3. Posted by aon12345 on November 8, 2021 at 4:27 pm

    And you call yourself an enrolled actuary, you should consider renouncing your designation. The RPA liability has nothing to do with the valuation interest rate. I saw this note and thought great an actuary made a mistake maybe we can get some business. But the schedule mb does not have a mistake – the only errors are the ones you are making up. Why don’t you explain why you think the RPA liabilities should change if the RPA interest rates have not changed.

    And before you make an even bigger fool of yourself, the RPA rates are mandated by the IRS and not selected by the actuary. Any actuary would know that, but it is very likely that you don’t based on your comments.

    Reply

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