February 2006 NewsLetter, "The 'Funded Status' of a Multiemployer Pension Plan: What Are the Measures and How Are They Used?"

Abstract

Increasingly, trustees of multiemployer pension plans are asking, "What's the funded status of our plan?" Unfortunately, there is no single answer to that question because, typically, there are five ways in which a pension plan's liabilities are measured in an annual actuarial valuation, and each of these ways can be compared to either the market value of assets or the actuarial value of assets, resulting in ten possible answers to this question.

This NewsLetter discusses various funding measurements that are normally calculated as part of annual actuarial valuations for ongoing plans, including asset measurements and the following liability measurements:

  • Present Value of Vested Benefits (PVVB),
  • Withdrawal Liability,
  • Present Value of Accumulated Benefits (PVAB),
  • Current Liability, and
  • Actuarial Accrued Liability (AAL).

The information covered in the NewsLetter is primarily intended to help trustees better understand the various funding measurements. It may also help fund administrators and staff prepare to answer questions that participants might raise once they receive the new funding notice required by Pension Equity Funding Act of 2004 (PFEA '04), which will need to be distributed for the first time in 2006.

The NewsLetter includes a table that compares the various funding measurements for a sample fund.

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