Federal Register / Vol. 64, No. 230 / Wednesday, December 1, 1999 / Rules and Regulations 67163

facilities as if the business itself had

been disposed of. The staff would object

to the allocation of goodwill to the

disposed manufacturing facilities.

Paragraph 19 of SFAS 121 requires

disclosure of the results of operations of

assets held for disposal. If revenues

attributable to assets to be disposed of,

that remain in operation for some period

of time prior to their disposal, cannot be

segregated because substantially the

same revenues will continue after the

assets are disposed of, the amount of the

benefit from suspending depreciation,

in accordance with SFAS 121,

paragraph 16, should be disclosed. The

effect associated with assets held for

disposal should be discussed in

Management’s Discussion and Analysis

(MD&A), if material.

Facts: Assume the same fact pattern as

for Question 5, except that the four

manufacturing facilities will be shut

down, but not disposed of or

abandoned. The four manufacturing

facilities do not meet the criteria

necessary to be classified as ‘‘to be

disposed of’’ under SFAS 121 but are

impaired on a ‘‘held and used’’ basis

under SFAS 121. Company A intends to

retain the four facilities in case the need

arises in the future for further

manufacturing capacity.

Question 6: Would the staff object to

the company’s proposal to recognize an

impairment loss based on the excess of

the carrying amount of goodwill and

fixed assets over fair value?

Interpretive Response: Yes. Paragraph

12 of SFAS 121 specifies:

‘‘If an asset being tested for

recoverability was acquired in a

business combination accounted for

using the purchase method, the

goodwill that arose in that transaction

shall be accounted for as part of the

asset grouping * * * in determining

recoverability. If some but not all of the

assets acquired in that transaction are

being tested, goodwill shall be allocated

to the assets being tested for

recoverability on a pro rata basis using

the relative fair values of the long-lived

assets and identifiable intangibles

acquired at the acquisition date unless

there is evidence to suggest that some

other method of associating the

goodwill with those assets is more

appropriate.’’

In the above fact pattern, the staff

believes that it is inappropriate to

allocate the carrying amount of the

goodwill balance to the four facilities

being evaluated for impairment. In this

instance, the goodwill that existed at the

time Company B was acquired

principally was the result of a customer

base, marketing activities, existing

product lines and new products being

developed. It did not relate to the fixed

assets but, rather, the ongoing

operations of the business, which have

not been reduced in any way. The

goodwill represents the inherent value

of the going concern element of

Company B and the ability of the entity

to generate a return in excess of the

return that could be generated on the

acquired assets individually, all of

which are still in place. The staff

contrasts this scenario with one where

facilities are eliminated in conjunction

with a subsequent decision to abandon

the product or business line housed in

those facilitites. If the revenue

producing activity and the facilities had

been acquired in a business

combination giving rise to recognition of

goodwill, a portion of goodwill should

be allocated to the facilities based on

their relative fair value, unless another

allocation method is more appropriate.

Question 7: Has the staff expressed

any views with respect to companydetermined estimates of cash flows used

for assessing and measuring impairment

of assets under SFAS 121?

Interpretive Response: In providing

guidance on the development of cash

flows for purposes of applying the

provisions of SFAS 121, paragraph 9 of

that standard indicates that estimates of

expected future cash flows should be

the best estimate based on reasonable

and supportable assumptions and

projections. Additionally, paragraph 9

indicates that all available evidence

should be considered in developing

estimates of expected future cash flows

and that the weight given to the

evidence should be commensurate with

the extent to which the evidence can be

verified objectively.

The staff recognizes that various

factors, including management’s

judgments and assumptions about the

business plans and strategies, affect the

development of future cash flow

projections for purposes of applying

SFAS 121. The staff, however, cautions

registrants that the judgments and

assumptions made for purposes of

applying SFAS 121 must be consistent

with other financial statement

calculations and disclosures and

disclosures in MD&A. The staff also

expects that forecasts made for purposes

of applying SFAS 121 be consistent

with other forward-looking information

prepared by the company, such as that

used for internal budgets, incentive

compensation plans, discussions with

lenders or third parties, and/or reporting

to management or the board of directors.

For example, the staff has reviewed a

fact pattern where a registrant

developed cash flow projections for

purposes of applying the provisions of

SFAS 121 using one set of assumptions

and utilized a second, more

conservative set of assumptions for

purposes of determining whether

deferred tax valuation allowances were

necessary when applying the provisions

of Statement of Financial Accounting

Standards No. 109, Accounting for

Income Taxes. In this case, the staff

objected to the use of inconsistent

assumptions.

In addition to disclosure of key

assumptions used in the development of

cash flow projections, the staff also has

required discussion in MD&A of the

implications of assumptions. For

example, do the projections indicate

that a company is likely to violate debt

covenants in the future? What are the

ramifications to the cash flow

projections used in the impairment

analysis? If growth rates used in the

impairment analysis are lower than

those used by outside analysts, has the

company had discussions with the

analysts regarding their overly

optimistic projections? Has the

company appropriately informed the

market and its shareholders of its

reduced expectations for the future that

are sufficient to cause an impairment

charge? The staff believes that cash flow

projections used in the impairment

analysis must be both internally

consistent with the company’s other

projections and externally consistent

with financial statement and other

public disclosures.

* * * * *

[FR Doc. 99–31160 Filed 11–30–99; 8:45 am]

BILLING CODE 8010–01–P

PENSION BENEFIT GUARANTY

CORPORATION

29 CFR Parts 4011 and 4022

Disclosure to Participants; Benefits

Payable in Terminated Single-employer

Plans

AGENCY: Pension Benefit Guaranty

Corporation.

ACTION: Final rule.

SUMMARY: This rule amends the

appendix to the Pension Benefit

Guaranty Corporation’s regulation on

Benefits Payable in Terminated SingleEmployer Plans by adding the

maximum guaranteeable pension benefit

that may be paid by the PBGC with

respect to a plan participant in a singleemployer pension plan that terminates

in 2000. This rule also amends the

PBGC’s regulation on Disclosure to

Participants by adding information on

2000 maximum guaranteed benefit

67164 Federal Register / Vol. 64, No. 230 / Wednesday, December 1, 1999 / Rules and Regulations

amounts. The amendment is necessary

because the maximum guarantee

amount changes each year, based on

changes in the contribution and benefit

base under section 230 of the Social

Security Act. The effect of the

amendment is to advise plan

participants and beneficiaries of the

increased maximum guarantee amount

for 2000.

EFFECTIVE DATE: January 1, 2000.

FOR FURTHER INFORMATION CONTACT:

Harold J. Ashner, Assistant General

Counsel, Office of the General Counsel,

Pension Benefit Guaranty Corporation,

1200 K Street, NW., Washington, DC

20005–4026; 202–326–4024. (For TTY/

TDD users, call the Federal relay service

toll-free at 1–800–877–8339 and ask to

be connected to 202–326–4024.)

SUPPLEMENTARY INFORMATION: Section

4022(b) of the Employee Retirement

Income Security Act of 1974 provides

for certain limitations on benefits

guaranteed by the PBGC in terminating

single-employer pension plans covered

under Title IV of ERISA. One of the

limitations, set forth in section

4022(b)(3)(B), is a dollar ceiling on the

amount of the monthly benefit that may

be paid to a plan participant (in the

form of a life annuity beginning at age

65) by the PBGC. The ceiling is equal to

‘‘$750 multiplied by a fraction, the

numerator of which is the contribution

and benefit base (determined under

section 230 of the Social Security Act)

in effect at the time the plan terminates

and the denominator of which is such

contribution and benefit base in effect in

calendar year 1974 [$13,200].’’ This

formula is also set forth in § 4022.22(b)

of the PBGC’s regulation on Benefits

Payable in Terminated Single-Employer

Plans (29 CFR Part 4022). The appendix

to Part 4022 lists, for each year

beginning with 1974, the maximum

guaranteeable benefit payable by the

PBGC to participants in single-employer

plans that have terminated in that year.

Section 230(d) of the Social Security

Act (42 U.S.C. 430(d)) provides special

rules for determining the contribution

and benefit base for purposes of ERISA

section 4022(b)(3)(B). Each year the

Social Security Administration

determines, and notifies the PBGC of,

the contribution and benefit base to be

used by the PBGC under these

provisions, and the PBGC publishes an

amendment to the appendix to Part

4022 to add the guarantee limit for the

coming year.

The PBGC has been notified by the

Social Security Administration that,

under section 230 of the Social Security

Act, $56,700 is the contribution and

benefit base that is to be used to

calculate the PBGC maximum

guaranteeable benefit for 2000.

Accordingly, the formula under section

4022(b)(3)(B) of ERISA and 29 CFR

§ 4022.22(b) is: $750 multiplied by

$56,700/$13,200. Thus, the maximum

monthly benefit guaranteeable by the

PBGC in 2000 is $3,221.59 per month in

the form of a life annuity beginning at

age 65. This amendment updates the

appendix to Part 4022 to add this

maximum guaranteeable amount for

plans that terminate in 2000. (If a

benefit is payable in a different form or

begins at a different age, the maximum

guaranteeable amount is the actuarial

equivalent of $3,221.59 per month.)

Section 4011 of ERISA requires plan

administrators of certain underfunded

plans to provide notice to plan

participants and beneficiaries of the

plan’s funding status and the limits of

the PBGC’s guarantee. The PBGC’s

regulation on Disclosure to Participants

(29 CFR Part 4011) implements the

statutory notice requirement. This rule

amends Appendix B to the regulation on

Disclosure to Participants by adding

information on 2000 maximum

guaranteed benefit amounts. Plan

administrators may, subject to the

requirements of that regulation, include

this information in participant notices.

Because the maximum guaranteeable

benefit is determined according to the

formula in section 4022(b)(3)(B) of

ERISA, and these amendments make no

change in its method of calculation but

simply list 2000 maximum

guaranteeable benefit amounts for the

information of the public, general notice

of proposed rulemaking is not required.

The PBGC has determined that this

action is not a ‘‘significant regulatory

action’’ under the criteria set forth in

Executive Order 12866.

Because no general notice of proposed

rulemaking is required for this

regulation, the Regulatory Flexibility

Act of 1980 does not apply (5 U.S.C.

601(2)).

List of Subjects

29 CFR Part 4011

Pensions, Reporting and

recordkeeping requirements.

29 CFR Part 4022

Pension insurance, Pensions,

Reporting and recordkeeping

requirements.

In consideration of the foregoing, 29

CFR parts 4011 and 4022 are amended

as follows:

PART 4022—BENEFITS PAYABLE IN

TERMINATED SINGLE-EMPLOYER

PLANS

1. The authority citation for Part 4022

continues to read as follows:

Authority: 29 U.S.C. 1302, 1322, 1322b,

1341(c)(3)(D), and 1344.

2. The appendix to part 4022 is

amended by adding a new entry to the

table to read as follows. The

introductory text is reproduced for the

convenience of the reader and remains

unchanged.

Appendix to Part 4022—Maximum

Guaranteeable Monthly Benefit

The following table lists by year the

maximum guaranteeable monthly

benefit payable in the form of a life

annuity commencing at age 65 as

described by § 4022.22(b) to a

participant in a plan that terminated in

that year:

Year

Maximum

guaranteeable

monthly benefit

*****

2000 ....................................... 3,221.59

PART 4011—DISCLOSURE TO

PARTICIPANTS

3. The authority citation for Part 4011

continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1311.

4. Appendix B to part 4011 is

amended by adding a new entry to the

table to read as follows. The

introductory text is reproduced for the

convenience of the reader and remains

unchanged.

Federal Register / Vol. 64, No. 230 / Wednesday, December 1, 1999 / Rules and Regulations 67165

APPENDIX B TO PART 4011—TABLE OF MAXIMUM GUARANTEED BENEFITS

If a plan terminates in—

The maximum guaranteed benefit for an individual starting to receive benefits at the age listed below is the

amount (monthly or annual) listed below:

Age 65 Age 62 Age 60 Age 55

Monthly Annual Monthly Annual Monthly Annual Monthly Annual

*******

2000 .................................. $3,221.59 $38,659.08 $2,545.06 $30,540.72 $2,094.03 $25,128.36 $1,449.72 $17,396.64

Issued in Washington, DC, this 19th day of

November, 1999.

David M. Strauss,

Executive Director, Pension Benefit Guaranty

Corporation.

[FR Doc. 99–31044 Filed 11–30–99; 8:45 am]

BILLING CODE 7708–01–P

PENSION BENEFIT GUARANTY

CORPORATION

29 CFR Part 4044

Allocation of Assets in SingleEmployer Plans; Valuation of Benefits

and Assets; Expected Retirement Age

AGENCY: Pension Benefit Guaranty

Corporation.

ACTION: Final rule.

SUMMARY: This rule amends the Pension

Benefit Guaranty Corporation’s

regulation on Allocation of Assets in

Single-Employer Plans by substituting a

new table that applies to any plan being

terminated either in a distress

termination or involuntarily by the

PBGC with a valuation date falling in

2000, and is used to determine expected

retirement ages for plan participants.

This table is needed in order to compute

the value of early retirement benefits

and, thus, the total value of benefits

under the plan.

EFFECTIVE DATE: January 1, 2000.

FOR FURTHER INFORMATION CONTACT:

Harold J. Ashner, Assistant General

Counsel, Office of the General Counsel,

Pension Benefit Guaranty Corporation,

1200 K Street, NW., Washington, DC

20005–4026; 202–326–4024. (For TTY/

TDD users, call the Federal relay service

toll-free at 1–800–877–8339 and ask to

be connected to 202–326–4024.)

SUPPLEMENTARY INFORMATION: The

PBGC’s regulation on Allocation of

Assets in Single-Employer Plans (29

CFR part 4044) sets forth (in subpart B)

the methods for valuing plan benefits of

terminating single-employer plans

covered under Title IV of the Employee

Retirement Income Security Act of 1974.

Under ERISA section 4041(c),

guaranteed benefits and benefit

liabilities under a plan that is

undergoing a distress termination must

be valued in accordance with part 4044,

subpart B. In addition, when the PBGC

terminates an underfunded plan

involuntarily pursuant to ERISA Section

4042(a), it uses the subpart B valuation

rules to determine the amount of the

plan’s underfunding.

Under § 4044.51(b), early retirement

benefits are valued based on the annuity

starting date, if a retirement date has

been selected, or the expected

retirement age, if the annuity starting

date is not known on the valuation date.

Sections 4044.55 through 4044.57 set

forth rules for determining the expected

retirement ages for plan participants

entitled to early retirement benefits.

Appendix D of part 4044 contains tables

to be used in determining the expected

early retirement ages.

Table I in appendix D (Selection of

Retirement Rate Category) is used to

determine whether a participant has a

low, medium, or high probability of

retiring early. The determination is

based on the year a participant would

reach ‘‘unreduced retirement age’’ (i.e.,

the earlier of the normal retirement age

or the age at which an unreduced

benefit is first payable) and the

participant’s monthly benefit at

unreduced retirement age. The table

applies only to plans with valuation

dates in the current year and is updated

annually by the PBGC to reflect changes

in the cost of living, etc.

Tables II–A, II–B, and II–C (Expected

Retirement Ages for Individuals in the

Low, Medium, and High Categories

respectively) are used to determine the

expected retirement age after the

probability of early retirement has been

determined using Table I. These tables

establish, by probability category, the

expected retirement age based on both

the earliest age a participant could retire

under the plan and the unreduced

retirement age. This expected retirement

age is used to compute the value of the

early retirement benefit and, thus, the

total value of benefits under the plan.

This document amends appendix D to

replace Table I–99 with Table I–00 in

order to provide an updated correlation,

appropriate for calendar year 2000,

between the amount of a participant’s

benefit and the probability that the

participant will elect early retirement.

Table I–00 will be used to value benefits

in plans with valuation dates during

calendar year 2000.

The PBGC has determined that notice

of and public comment on this rule are

impracticable and contrary to the public

interest. Plan administrators need to be

able to estimate accurately the value of

plan benefits as early as possible before

initiating the termination process. For

that purpose, if a plan has a valuation

date in 2000, the plan administrator

needs the updated table being

promulgated in this rule. Accordingly,

the public interest is best served by

issuing this table expeditiously, without

an opportunity for notice and comment,

to allow as much time as possible to

estimate the value of plan benefits with

the proper table for plans with valuation

dates in early 2000.

The PBGC has determined that this

action is not a ‘‘significant regulatory

action’’ under the criteria set forth in

Executive Order 12866.

Because no general notice of proposed

rulemaking is required for this

regulation, the Regulatory Flexibility

Act of 1980 does not apply (5 U.S.C.

601(2)).

List of Subjects in 29 CFR Part 4044

Pension insurance, Pensions.

In consideration of the foregoing, 29

CFR part 4044 is amended as follows:

PART 4044—[AMENDED]

1. The authority citation for part 4044

continues to read as follows:

Authority: 29 U.S.C. 1301(a), 1302(b)(3),

1341, 1344, 1362.

2. Appendix D to part 4044 is

amended by removing Table I–99 and

adding in its place Table I–00 to read as

follows:

Appendix D to Part 4044—Tables Used

to Determine Expected Retirement Age