Increase Rate Tables
Increase rate tables can be used to specify annual rates of increase in the elements (i.e., regulatory items under U.S. or Canadian statutes, benefit formula components and accrual basis components) inherent in computing the benefit amount of a Benefit Definition. Interest crediting rates for cash balance pension plans may vary by calendar year if coded by means of increase rates applied to the cash balance format accrual definition Benefit Formula Component. In OPEB mode, the trend of health care claims cost in a retiree medical plan is coded as an increase rate table, and the resulting increase rates are applied to a claims cost component. In the pension modes, increase rates (whether for regulatory items or components) may be applied only for active member benefit computation.
Note that increase rates differ from the cost-of-living adjustments, COLAs, available in the pension modes, which may apply to both inactive and active member benefits and are applied to the benefit amount only in years after the decrement from active status has occurred, whereas increase rates may apply before the date of decrement (and in the pension modes, apply only before decrement).
The Benefit Formula Component dialog box and the Accrual Basis Component dialog box each contain a check box parameter that asks whether increase rates apply. Checking this box will prompt a question in the Valuation Assumptions section of the Input menu, where the applicable increase rates are to be specified.
The rates may be constant or may vary by calendar year (Calendar Year Dependent Increase Rates). When increase rates vary by calendar year, you may enter them directly under the Increase and Crediting Rates topic of Valuation Assumptions or you may refer to an increase rate table. If increase rates are constant, then it is not necessary to create an increase rate table.
In OPEB mode, where increase rates are used typically to reflect trend rates, a check in the Separate rates pre- and post-Medicare age box indicates that different increase rates apply before and after attainment of the Medicare Coverage specified under the Plan Attributes topic of the Plan Definition. If separate increase rates are specified pre-Medicare and post-Medicare, then the relative increase in the component value (since the valuation date) at post-Medicare payment ages is based on cumulative post-Medicare trend only; that is, pre-Medicare trend is not considered relevant to a post-Medicare claims payment and thus is not applied at pre-Medicare ages, on or after the valuation date but before the Medicare Coverage Age to develop the component value at a post-Medicare payment age.
Also in OPEB mode, although increase rates, generally, may not vary by age, there is an option to stop applying increase rates (typically trend rates) at a specified age. Check the Stop increases at age box to apply increase rates up to but not after the age that you enter in the text field.
In German mode, check the option to Start increases at age box to apply increase rates only after the age that you enter in the text field. Then specify whether these rates should be of a Type that is Compound or Simple beginning at that age.
Generally, increase rate tables make use of a three-column spreadsheet interface. OPEB mode increase rate tables with separate sets of calendar year-dependent rates before and after the Medicare coverage age is attained have a four-column spreadsheet interface. Complete a row for each increase rate. For example, if the valuation date is 1/1/2000 and a cash balance crediting rate is to increase at 1/1/2002 from 5% to 6%, then enter:
| From | To | Rate |
| -- | 2001 | 0.05 |
| 2002 | -- | 0.06 |
Similarly, if the valuation date is 4/1/2003 and a component increase rate of 5% becomes 6% at 4/1/2002, then enter:
| From | To | Rate |
| -- | 2001 | 0.05 |
| 2002 | -- | 0.06 |
Thus if the cash balance component value on the valuation date (4/1/2003) is 1000, the value on 4/1/2004 will be 1000 x 1.06 = 1,060. Likewise, the component value on 4/1/2002 will be 1000 / 1.06 = 943.40. The component value on 4/1/2001 will be 943.40 / 1.05 = 898.48. Note that the component value on, for example, 3/31/2004 will be the same as the value on 4/1/2003; that is, the component value changes on the anniversary of the valuation date.
Consider also a 1/1/2000 valuation date and a benefit amount that is scheduled to increase over a four year period as follows:
| Date | Amount | Increase Over Prior Year | Calculated as |
| 1/1/2000 | $1,000 | none | |
| 1/1/2001 | 1,050 | 5% | (1,050 – 1,000) / 1,000 |
| 1/1/2002 | 1,100 | 4.762% | (1,100 – 1,050) / 1,050 |
| 1/1/2003 | 1,200 | 9.091% | (1,200 – 1,100) / 1,100 |
| 1/1/2004 | 1,300 | 8.333% | (1,300 – 1,200) / 1,200 |
| 1/1/2005 | 1,300 | none |
You may code the increase rates for this component as follows:
| From | To | Rate |
| -- | 1999 | 0 |
| 2000 | 2000 | 0.05 |
| 2001 | 2001 | 0.04762 |
| 2002 | 2002 | 0.09091 |
| 2003 | 2003 | 0.08333 |
| 2004 | -- | 0 |
(Note that if you enter 6 or more decimal places, ProVal will display a number rounded to 5 decimal places, but the number is retained to full precision for computation.)
ProVal fills in the To column automatically, and the last rate will be used for the last year entered and all years thereafter. In the last example, to obtain the benefit amount in effect at 1/1/2001 ($1,050), ProVal applies the rate applicable for 2000 (5%) to the 1/1/2000 benefit level of $1,000; to obtain the level in effect at 1/1/2002 $1,100), ProVal applies the rate applicable for 2001 (4.762%) to the 1/1/2001 benefit level of $1,050, etc.. Note that the From box in the first row cannot be completed.
Our first example involved only two rates: if you have several rates in your table, you may need to press the ENTER key, to create a new row, when you get to the bottom of the spreadsheet.
In OPEB mode, you can also:
Specify separate rates for pre- and post-Medicare age. For post-Medicare payment ages, the post-Medicare increase rates apply as if the pre-Medicare rates did not exist. That is, post-Medicare age payments will be increased with the post-Medicare increase rates from the initial valuation date to the future payment age; they are not applied “on top of” pre-Medicare increase rates. The Medicare age is specified in the Plan Attributes topic of your Plan Definition. Note that this option to apply separate rates for pre and post Medicare age was designed to work with payments set by a Benefit Formula Component Table. Setting payments in any other way (such as referencing a database field) may cause unexpected results.
Stop increases at an age. An Increase Rates Table with a stop age may be used to force your increase rate assumption to zero at a specified participant age. Cumulative increases for current active and inactive participants starts at 1 on the valuation date and proceeds (forward and backward) in accordance to the increase rates.
A stop age used in Valuation Assumptions will apply to participant subsequent to each future valuation date in a core projection. It is also used for past ages between date of hire and the initial valuation date. Note that values prior to the initial valuation date are usually only relevant with for the Entry Age Normal liability method.
An experience stop age used in Projection Assumptions in a core projection applies to ages between the initial valuation date and each future valuation date or, in the case of new entrants, between entry date and each future valuation date. No stop age is applicable between the initial valuation date and entry date for new entrants.
In German mode, you can also specify:
For more information, see the Increase & Crediting Rates topic of Valuation Assumptions.
If you are coding a Core Projection, Projection Assumptions may also refer to increase and crediting rates.