Accrual Rates are required for accrual definitions whose format is not Basis only. How accrual rates are used depends on the type of accrual definition. For the final average type, the rates are accumulated over service before being multiplied by the Accrual Basis; for the career average and cash balance types, rates are multiplied by the Accrual Basis and the resulting product is summed.

In addition to determining the amount of the benefit, the rates often influence attribution for a pension valuation, as discussed for parameter settings in the Attribution section of a Benefit Definition.

The rates may influence attribution for an OPEB valuation, typically for a severance pay plan modeled with an accrual definition, rather than for retiree medical or life insurance plans, which are usually modeled with a table component type. See the Plan Attributes topic of the Plan Definitions command for details.

For details about the methodology of unit credit and projected unit credit attribution under the options afforded by the Attribution section of a Benefit Definition (pension modes) or the Plan Attributes topic (OPEB mode), see our Technical Reference article entitled PUC and UC attribution.

If the attribution method selected for unit credit and/or projected unit credit liabilities is accrual rate proration, then the accrued and/or projected benefit of any accrual definition type of Benefit Formula Component contained in the Benefit formula (or, in OPEB mode, the Benefit formulas) will be attributed according to the accumulated accrual rates (or custom attribution rates) indicated by the Accrual Rates topic. Note that, because no other component type has accrual rates, only accrual definitions (and subformula components containing them) can be attributed according to a pattern of accrual rates (or, perhaps, custom attribution rates). This is discussed further in the Notes contained at the end of this article.

The three options for the structure of accrual rates, or Rate type, are described below.

 

Constant

The simplest structure is used when the benefit is a Constant rate for each year of service, for example, 1 ½% of final average pay per year of service. To apply a constant percentage to a final average pay (to be entered in the Accrual Basis by means of an operator), enter a decimal number, 0.015 in this example, not a percentage. Alternatively, you may enter 1 as the rate and multiply your accrual basis operator by 0.015 in the Accrual Basis. For a plan providing benefits that are computed as a dollar multiplier times years of service, you may enter the multiplier in either the Basis or the Rates. For example, if the plan provides a benefit of $15 per month per year of service, and all years of service are counted, then you may enter 15 as the constant Rate and 12 as the Basis. Alternatively, you may enter 15 times 12 as the Basis and 1 as the constant rate.

 

Varies

This rate structure allows for a rate(s) that Varies by “years of service” or “age” or “points (age + service)”, including caps (for example, the rate becomes zero after a maximum number of years). It also allows access to rate schedules that differ by calendar year of accrual and permits you to apply new rate schedules for future calendar years of decrement that will replace the old rates for all service, age or points, including accrual periods prior to the effective date of the change.

If rates vary by service, the breakpoints refer to the Benefit service based on parameter (discussed below), which also defines the service added to the age to obtain points. If rates vary by age, the Benefit service based on parameter determines the starting point for benefit accrual. Type values only in the “From” and “Rates” columns; the “Up to” column will be filled in automatically. Enter percentages as their decimal equivalents. If you are entering additional rate schedules that start at different calendar dates, then the schedule on the main accrual rates screen should reflect the original plan provisions before any changes.

The with new rates as of parameter lists the dates of any subsequent changes to the rates. To modify an existing schedule of rates effective as of a particular date, click the date. To add a new schedule of rates, click the New button.

Each new accrual rate table will have the same structure as the first one: Service-based rates, Age-based rates or Points-based rates.

The Effective date for each new rate table is the calendar date on which rates begin to follow the new schedule. The Effective date is entered directly in the text field.

The breakpoints and rates are entered in the table in the same manner as on the main accrual rates screen and the Benefit service based on parameter from the main screen applies to all accrual rate tables. For example, if, effective 7/1/2006, the benefit accrues at a rate of $120 per year for up to 10 years and at a rate of $150 per year in excess of 10 years, the accrual rate will change from $120 to $150 when (i) total service, including service prior to 7/1/2006, is at least 10 years and (ii) 7/1/2006 has been reached or passed.

You may Apply rates to just the Years after the effective date of the rate change (future accruals only) or to All years (both past and future accruals). Choose the latter option if the new rate schedule is used for the active member’s entire accrual period for all decrements occurring on or after the effective date.

Alternatively, you may code retroactive rate changes in the Accrual Basis instead of in the Accrual Rates. Although the same accrued and projected benefits and present value of future benefits will be produced whether you code the change under the Accrual Rates topic (by selecting the All years option) or the Accrual Basis topic (by creating an Accrual Basis Component with associated Increase Rates), the two approaches produce different results for accrual rate proration attribution of projected unit credit liabilities (and might, depending on the specific parameter coding, produce different results for unit credit liabilities as well). Note that if you use the All years option for the new rates, then, for projected unit credit as well as unit credit, the entire change in the benefit rate or level is reflected in the normal cost. If you use Increase Rates applied to an Accrual Basis Component, instead, you get the same unit credit results (entire change reflected in the normal cost) but for projected unit credit both the normal cost and accrued liability will reflect the change in the benefit rate or level. For a more detailed discussion of the impact of the component coding on attribution, see our Frequently Asked Questions article entitled Flat Dollar plan with increasing benefit level.

 

Project & Prorate

The Project and prorate rate structure accrues a projected benefit ratably over service, although that would be an atypical application of this rate structure). It is appropriate for “fractional accrual rule” plans. The Ultimate accrual indicates the eventual accumulation of rates if age and service requirements are fulfilled. The Projection age is the earliest age at which the ultimate benefit is fully earned. For example, if the benefit is projected to the normal retirement age, where normal retirement eligibility is attainment of age 65 and completion of five years of service, then code the projection age as 65 (although the projection age can be as late as age 70 for some members). The projected benefit is reduced proportionately for projected service less than the Service required for ultimate accrual.

The formula used to calculate the accrued benefit with these parameters is

,

where service is measured according to the specified Benefit service based on parameter (see below). The product of the first two factors represents the benefit at the projection age; the third factor spreads the accrual of this projected benefit over service.

Consider a benefit of 50% of final average salary for all employees with 25 years of service, accrued over service to age 65. This benefit would be parameterized as a final average accrual definition:

 Basis: final average salary

 Rates:
  Ultimate accrual: 0.50
  Projection age: 65
  Service required for ultimate accrual: 25

The Benefit service based on parameter defines service for purposes of benefit accrual. Typically, this is specified as a database Field that refers to either current service or a service start date. Select the desired field from among the numeric and date fields unhidden in the current project. Alternatively, if you need fractional service accruals (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

As noted in the discussion at the beginning of this article, accrual rate proration attribution follows the rate pattern of the accrual rates, i.e., the benefit is attributed the same way it is accrued, based on the Benefit service based on parameter selection used for accrual. Click the Attribution button to access additional parameters used to specify a different rate pattern (for example, to attribute cash balance components according to interest crediting rates as well as pay credits) and/or a different service specification for attribution. See Custom Attribution Rates for details.

The Age based on parameter is only available in German mode for career average and cash balance accrual formats. If the Accrual Rates vary by age or a selection is made under the Attribution button that varies by age, the Age based on parameter choices become available for selection. Specify the method that determines how age is to be determined in the accrual rates for this benefit formula component.  Note, that the selection on the main Accrual Rates screen will be used for the "new rates as of", and the custom rates that vary by age under the Attribution button.    

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Notes regarding accrual rate proration attribution:

As mentioned at the beginning of this article, the methodology of accrual rate attribution according to benefit accrual rates is described briefly below. For more detail, see our Technical Reference article entitled PUC and UC attribution. For the formulas that apply to custom attribution rates, see the Notes under the Custom Attribution Rates topic.

1. Projected Unit Credit (PUC)

The benefit formula component (BFT) with accumulated accrual rates (RATES) will be attributed as follows under accrual rate proration attribution to derive PUC liabilities:

pucBFT[r] = BFT[r] * (RATES[x] / RATES[r])

where x is the age at the valuation date and r is the age at decrement.

For a cash balance component, BFT[r], of course, includes interest credits to decrement age r. RATES[x] and RATES[r] may include interest credits to decrement age r at your option. To reflect interest credits in the proration fraction’s numerator and denominator, check the Apply cash balance crediting rate (to attribution rate) box (this parameter is accessed by clicking the Attribution button of the Accrual Rates topic of a cash balance Benefit Formula Component).

2. Unit Credit (UC)

Accrual rate proration will attribute BFT as indicated in the Technical Reference article, yielding:

ucBFT[r] = BFT[x]

For a cash balance component, BFT[x] will include interest to decrement age r.