We've talked about Jane's Guaranteed Benefit, but remember that PBGC pays the greater of the Guaranteed Benefit and the benefit funded by plan assets. In this Delphi plan, we estimate that plan assets will cover part but not all of Priority Category 3, or PC3 so let's look at Jane's benefit in PC3.
The first step is to determine whether Jane is eligible for a PC3 benefit. To have a PC3 benefit, you must have been eligible for retirement on the date three years before the plan terminated, which was July 31, 2006. Jane was eligible to retire on that date, so she has a benefit in PC3.
Generally speaking, this benefit is based on plan provisions in effect five years before the plan terminated, and each person's service, age, and salary, three years before the plan terminated. In other words, we use the benefit rate and other elements of the benefit formula that the plan would have used on July 31, 2004.
Then we use Jane's age, salary, employee contributions, and credited service up through July 31, 2006. Since Jane was eligible for an Early Retirement Supplement on this date, this is included in her PC3 benefit. PC3 benefits are not limited by the legal limitations we described earlier.
To determine Jane's final PBGC benefits, we need to refer to 'present values.' The 'present value' of a benefit is the amount of money at a given point in time, in this case the date of plan termination that would pay for a stream of future benefits. The 'present value' of Jane's Guaranteed Benefit is $295,408. The 'present value' of Jane's PC3 benefit is $451,353.
However, keep in mind that Jane will receive only the funded portion of her PC3 benefit, that is the amount of PC3 benefits that the plan assets provide.
Recall that PBGC currently estimates that the assets of the salaried plan will pay for 70% of the benefits in PC3. This percentage may change. We multiply the present value of Jane's PC3 benefit by 70% and get $315,947 - this is the value of Jane's funded PC3 Benefit.
Since the 'present value' of Jane's funded PC3 benefit is larger than the value of her Guaranteed Benefit, Jane will receive that larger value.
Now we need to see what monthly benefit that value provides.
To do this, we divide the value of Jane's funded PC3 benefit up to the Accrued-at-Normal Limitation by the value of Jane's plan benefits up to the Accrued-at-Normal Limitation. In other words, divide $315,947 by $472,466. The result of dividing these two numbers is 66.8719%.
This is the funding ratio for Jane's plan benefits up to the Accrued-at-Normal Limitation.
Next we divide the value of the funded PC3 benefit over the Accrued-at-Normal Limit, which is $0, by the value of the plan benefit over the Accrued-at-Normal, which is $11,749. We see that the funding ratio for plan benefits over the Accrued-at-Normal Limitation is 0%.
These two funding ratios tell us that plan assets provide 66.8719% of Jane's plan benefits up to the Accrued-at-Normal, and 0% of Jane's plan benefits that are over the Accrued-at-Normal. We saw earlier that Jane's plan benefits under the Accrued-at-Normal were $2,920.79 up to age 62 and 1 month, and $2,031.01 thereafter.
We multiply these amounts by 66.8719% and see that Jane is entitled to $1,953.19 per month until age 62 and 1 month, and $1,358.17 after age 62 and 1 month.
Remember, if the value of Jane's funded benefit up to the Accrued-at-Normal were less than the value of her Guaranteed Benefit, she would receive the monthly Guaranteed Benefit amounts instead. Final PBGC benefits may also include a small 4022(c) amount, but we will not be able to determine this amount with confidence before final benefit determinations have been made.
