The parameters that tell ProVal how to customize the U. S. social security primary insurance amount (PIA) are contained in two topics: Salaries and Computation Age & Law Year. The standard operator is based upon the current (as of the valuation date) social security law, the valuation salary definition, salary history considered to start at the earlier of hire age or age 20, level salaries after the decrement has occurred, salaries projected backwards (at the merit plus inflation salary scale rate(s) of the Salary Increases topic of the Valuation Assumptions) from the age corresponding to the earliest historical salary field in the valuation salary definition to the age at which salary history is considered to start, and social security benefit payments commencing at the social security normal retirement age. The standard operator returns a retirement PIA (old-age benefit for a fully insured worker beginning at about age 62 or later), but you may optionally calculate a disability PIA (for a disabled disability insured worker under full, aka social security normal, retirement age). See our Technical Reference article “U.S. social security PIA calculations” for ProVal’s methodology of computation of the PIA. For guidance on computation of PIA offsets to plan benefits, refer to the Internal Revenue Code Sec. 401(l) regulations and IRS Revenue Ruling 84-45.

The parameters of the two topics of the PIA Custom Operators command are discussed in separate sections immediately following.

Salaries

If Valuation salary is selected, then the Salary Definition included as part of the Census Specifications will be used to determine salary data for the PIA. You may select an Alternative salary definition by clicking the button, to access the Salary Definition Library dialog box, through which you may edit an existing salary definition or create a new one. For details, see Salary Definitions.

The salary History starts at parameter determines, for PIA calculation purposes only, the age at which the salary history is considered to start. You may specify either Hire age or a specific integral Age, between 18 and 25 inclusive. To specify the earlier of hire age or the specified age, check the or hire age if earlier box. Regardless of the age specified, salaries for years prior to 1951 are not considered.

Check the Override salaries before decrement box to override the standard operator treatment of projecting backwards, at the assumed salary scale rate(s) (salary inflation plus merit, as specified by the Valuation Assumptions), preserving historical salaries. Specifically, you may change the anchor point from which to project backwards and you may change the associated projection rate(s), but projection will always go back to the age determined by the salary History starts at parameter. You may Project backwards from decrement, from hire age or from the valuation date. If you project backwards from the decrement date or the valuation date, you will override the historical salary fields in your data. If you project back from hire, historical salary fields will be used where available; if historical salaries do not extend all the way back to hire, then ProVal will fill in the gap by projecting back to hire age at the salary scale rate(s). For the rate(s) used in the backward projection from decrement, hire or the valuation date to the age at which salary history is considered to start, you may select either at a (constant) level rate or at rates developed by following yearly changes in NAWs (national average wages). A level rate must be entered as a number between 0 and 1, not as a percentage.

Note: If you are projecting back from hire age, the salary history does not extend all the way back to hire age and you wish ProVal to fill in the gap in salary history by using a level rate or rates following changes in NAWs, you may be able to do so by specifying, in the Valuation Assumptions, a salary scale that varies by calendar year. Enter rates for calendar years prior to the year of the valuation date either equal to the level rate or following the changes in NAWs, respectively; enter rates for the year of the valuation date and beyond that reflect your salary scale (presumably all inflation) assumption. If, however, your assumed salary scale includes a merit scale or must be used to project salaries for decrement dates prior to the valuation date in a manner different from the backwards projection for the PIA (e.g., for entry age cost method calculations), then you must create salary fields extending back to hire, populate them with the desired values and include them in your PIA Salary Definition. You may populate the salary fields by editing the census database under the Edit Data command or by specifying Data Defaults under the Census Specifications command.

After decrement, for a retirement PIA (old-age benefit for a fully insured worker beginning at about age 62 or later), you may assume either Level salaries (continuing at the salary rate in effect at decrement) or Zero salaries up to the Computation Age. For a disability PIA (for a disabled disability insured worker under full retirement age), the decrement year is ignored (and thus the salaries after decrement are irrelevant).

See IRS Revenue Ruling 84-45 for guidance about permissible assumptions for salaries in PIA calculations.

Computation Age & Law Year

For each active member, the PIA calculation is based on an assumed Computation Age, i.e., the age at which the social security benefit payment is presumed to start. To select a computation age other than social security normal retirement age (SSNRA), specify a constant Age, which must be an integer between 62 and 70 inclusive. To compute the PIA at Decrement age if later than the computation age, check the box (otherwise, ProVal will freeze the calculation for later decrement ages at the specified computation age). ProVal will also reduce or increase the PIA for a computation age that is earlier or later than the participant’s SSNRA, respectively, if the Reduce (increase) PIA for early (late) commencement box is checked (except for a disability PIA calculation, for which ProVal will apply an increase but not a reduction if this box is checked – see the discussion below). If the computation age is SSNRA and the Decrement age if later box is not checked, no reduction or increase is applicable and the Reduce (increase) PIA for early (late) commencement parameter is inaccessible.

If the Assume computation age attained at decrement box is checked, ProVal substitutes, for all purposes in the PIA calculation, an artificial date of birth equal to the date of decrement minus the computation age.

Law Year indicates whether the member salary and social security wage base for the year of the valuation date should be projected to the decrement date (Current law) for purposes of computing PIA. The social security CPI of the year prior to the valuation date and the national average wage (NAW) of two years prior will also be projected. Alternatively, select Current law frozen in year to project only until the earlier of the decrement year and a particular calendar year (enter the year as 4 digits). The CPI and NAW will also be frozen at the appropriate year. If an earlier year than the year of the valuation date is chosen, the higher wage bases of years thereafter will not be reflected in the PIA calculation. Similarly, if a later year than the year of the valuation date is chosen, ProVal will use that year’s wage base and salary (i.e., the wage base and salary for the year of the valuation date projected to the freeze year) for all subsequent years. In either case, there is appropriate projection of the CPI and NAW. However, if Zero salaries after decrement is selected along with Current law frozen in year (rather than Level salaries after decrement), then zero salaries are assumed after the earlier of the decrement year or the freeze year. Note that rate(s) of projection of the wage base are determined by the increase rate specified in the Valuation Assumptions for the regulatory item Soc. Sec. National Average Wage.

Note that if the PIA is computed at a decrement age later than 70 (possible only if the Decrement age if later box is checked) the adjustment for late commencement will include the delayed retirement credit only through age 70. Salaries after age 70, however, will be reflected in the computation.

Indicate that a disability PIA (for a disabled disability insured worker under full, aka social security normal, retirement age) should be calculated, instead of a retirement PIA (old-age benefit for a fully insured worker beginning at about age 62 or later), by checking the Perform a disability PIA calculation box. For a disability PIA calculation, for decrement ages prior to the social security normal retirement age (SSNRA), benefit payments are presumed to commence at decrement (the worker need not have attained age 62 in order to collect benefits). For decrement ages at or after SSNRA, ProVal performs a retirement PIA calculation (and thus some computation age parameters are inaccessible when the disability PIA box is checked); see PIA calculations (U.S. social security) for details. The parameter for salaries after decrement (found under the Salaries topic) is also inapplicable (and thus its setting is ignored).

The PIA (whether retirement or disability) will always be calculated as defined under the new wage-indexed method (which computes an Average Indexed Monthly Earnings, or AIME) prescribed by the 1977 Amendments to the Social Security Act, regardless of whether current law frozen in year is selected and, if so, whether a year prior to the effective date of the 1977 Amendments is indicated.