For the Qualified Joint and Survivor Annuities (QJSA) and Qualified Social Security Supplements (QSUPP), ProVal displays the Retirement benefit(s) from plan definition, according to the Plan Definition selected under the U.S. Nondiscrimination Accrual Rates command. ProVal will use the listed retirement benefit(s) to calculate most valuable accrual rates, adding together benefit values from multiple retirement benefits. Often the most valuable benefit is not the plan’s normal form of benefit payment: for example, a joint and survivor annuity that a retiring participant might elect is generally more valuable than a life annuity normal form of payment. Therefore, in this case, if the Plan Definition does not include a Benefit Definition whose Normal form of payment is one of the joint life types, then a Plan Definition different from what was referenced to perform the valuation of plan liabilities is needed. Note that:
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For each retirement Benefit Definition, the Normal form of payment Type should be either joint life annuity (for the QJSA) or life annuity (for the QSUPP). All payment forms must be payable immediately upon decrement; otherwise, the Tool will not run. QSUPPs should be payable for a temporary period with payments stopping at the employee’s social security normal retirement age. (However, ProVal will not stop you from running the Tool with an annuity payment form that is not temporary.) Joint life annuity fractions should be 1, 1 and (at least) 0.5. (However, ProVal will not stop you from running the Tool with a value for the fraction applicable when only the beneficiary is alive that is smaller than 0.5 or with the two other fractions set to values that are not 1.)
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Although the Normal form of payment typically would be defined as a life annuity or a joint life annuity, ProVal will not stop you from running the Tool if the Plan Definition includes a Benefit Definition referencing another type of payment form (for example, an annuity with a certain period, a lump sum payment, life insurance coverage), and the most valuable accrual rates produced will reflect the benefit values of all retirement Benefit Definitions included in the selected Plan Definition.
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The Eligibility section of each Benefit Definition is considered to determine which benefits apply at each payment commencement age. If a participant is eligible for more than one benefit at a given commencement age, the normalized benefits are added together. Age and service are always projected for eligibility, regardless of the measurement period.
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For QJSAs, the Benefit formula section of the Benefit Definition should contain reductions for early commencement (i.e., early retirement factors) and conversion to a joint and survivor payment form (i.e., J&S conversion factors).
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The 415(b) Maximum Benefit Limit parameters of the Benefit Definition(s) are used, but only if 415 limits are applied under the Benefit Calculation Assumptions topic.
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If the Benefit Definition contains any Cost-of-Living Adjustments (COLAs) , they are applied in the normalization for most valuable benefits (see also the discussion under the Benefit Calculation Assumptions topic).
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If any Optional forms of payment are defined in the retirement Benefit Definition(s), they are ignored for most valuable accrual rate calculation purposes.
The remaining parameters of this dialog box pertain to Normalization of benefits.
Enter the Standard interest rate (for pvQJSA, pvQSUPP, and pvSLA) (i1), which is used to determine the present value of annuities. Enter the rate of Interest from commencement to testing age (i2), which is used to discount (or sometimes bring forward) the present value of an annuity as of the testing age to the payment commencement age; usually this rate equals the standard interest rate. Select also the Standard mortality rate table(s) to be used. The mortality rate table(s) and any referenced mortality improvement scale(s) must be unisex; the spouse is assumed to be the same age as the member. The normalization factor is computed as:
where ca is the commencement age, ta is the testing age, and SLA is a single life annuity.
Notes:
is applied only if you assume mortality when discounting between commencement age and testing age (see the discussion below).- ta-ca could be negative if the testing age is younger than the commencement age. For example, if a participant’s testing age is 65 but the first retirement eligibility is at age 67, then the participant’s commencement age would be 67 and ta-ca would be -2.
Check the Assume mortality from commencement age to testing age box to adjust for survivorship when discounting the present value of the annuity between the testing age and the payment commencement age. The specified standard mortality is used. Note: IRS Gray Book Questions 2004-25 and 2005-31 state that it is preferable to apply mortality as well as interest to normalize the benefit.