Plan Amendments
The Plan Amendments topic is used to reflect one or more pension plan amendments that occur over the projection period of a Core Projection. Selecting this topic leads to a list of all the Benefit Definitions unhidden in the current Project. To amend a Benefit Definition that you included in the Plan Definition, select it from the list; this accesses the Plan Amendment dialog box, in which you specify the plan provisions of the amendment.
If you wish, you may select a Plan Filter (in German mode, a Promise Filter), from the dropdown list, to reduce the list of possible choices to those Benefit Definitions associated with a particular Plan Definition. Please see Filters for details.
The name of the Initial benefit that you selected from the list appears at the top of the Plan Amendment dialog box. Select the Replacement benefit from among the Benefit Definitions unhidden in the current Project. When the forecast valuation date reaches the valuation date in the year(s) you indicate (see below), ProVal replaces the initial benefit with this benefit, which is then valued at this and all future forecast valuation dates (instead of valuing the initial benefit).
The options for Type of amendment are:
Permanent change in year, which represents a one time, or permanent, change to the new benefit formula. Enter the first forecast year for which the change applies (e.g., 2012); ProVal will reflect the change on the valuation date in the specified year. The effect of the amendment is measured relative to the formula as last amended. For examples of how to project permanent plan changes occurring in more than one year, see Projecting multiple plan amendments, example 2.
Unit benefit update, which applies the new benefit formula at valuation dates in the Years specified and at all subsequent valuation dates. The effect of the amendment is measured relative to the original formula as projected to the date of the update. You may amend a single formula more than once (such as for periodic unit benefit updates) by specifying it for more than one year, but be careful with the parameter settings of experience increase rates. Because the amendment is measured relative to the original formula, experience increase rates for components in the original benefit should lag one year behind those for the amended benefit. For an example of how to set up your increase and crediting rates appropriately to value multiple unit benefit updates, see Projecting multiple plan amendments, example 1.
Career average update, which compares the accrued benefits of the current formula (formula as of the valuation date in the amendment year, prior to the application of any multipliers) and the new formula (formula after the update is applied) to determine the increase, if any, in the accrued benefit amount as of the valuation date in the year specified to apply the amendment. If there is an increase, it is added to the projected benefit values at all future decrement dates under the current formula, and past benefits (i.e., benefit values at decrement dates prior to the amendment date) are adjusted proportionately. Note that the same amount (excess of the replacement benefit over the initial benefit) is added to projected benefits at all future decrement dates, and in valuations for all future forecast years, as well as in the valuation performed at the amendment date. The past benefit adjustment impacts entry age normal liability calculations only. To amend a single formula more than once, such as for periodic career average plan updates, simply specify it for two or more Years.
In the Output, labeling of liabilities by benefit will always be based on the name of the Initial benefit.
Note that a one-to-one correspondence is required between initial and replacement benefits. You cannot reference the same Benefit Definition to replace two initial Benefit Definitions, nor can you replace an initial Benefit Definition with more than one replacement Benefit Definition. To replace two initial benefits with the same replacement benefit, create two Benefit Definitions that are identical except for their Names, so that you may reference one of them to replace the first initial Benefit Definition and the other one to replace the second initial Benefit Definition. Similarly, to replace an initial benefit with two replacement benefits, create a second initial benefit (with a zero Benefit formula), which you include in the Plan Definition referenced by the Core Projection, and amend it to the second benefit. Also, you can replace only initial Benefit Definitions, not replacement Benefit Definitions. To amend a replacement benefit, depending on the nature of the change in plan provisions, one of the update options might be suitable. Other situations perhaps could be handled by amending a “dummy” initial benefit (again, with a zero Benefit formula) to the benefit that you wish to amend the replacement benefit to.
ProVal expects most amendments to involve only the Benefit formula of the Benefit Definition; thus, generally, the replacement Benefit Definition must have the same structure as the initial Benefit Definition -- that is, the same eligibility requirements, COLAs (if any), normal and optional payment forms, and so forth. Only the Benefit formula expression should differ.
For example, the parameter settings of the Eligibility section of the Benefit Definition cannot differ between the initial and replacement benefits; otherwise the Core Projection will not run. To change eligibility for a benefit, create two (“dummy”) Benefit Definitions with a zero Benefit formula: one should reflect the plan’s current eligibility requirements (“old” eligibility) and the other should reflect the plan amendment’s eligibility requirements (“new” eligibility). Include the latter in the Plan Definition referenced by the Core Projection and amend it to the desired replacement benefit (which has the same, “new”, eligibility); reference the former as the replacement benefit for the initial benefit you wish to change (which has the same, “old”, eligibility). Note: There are special considerations in setting parameters for changing retirement eligibility, because termination rates are “turned off” (set to zero) at the earliest date of satisfaction of retirement eligibility conditions. The details of parameterization depend on the specific retirement eligibility plan provisions but generally involve use of calendar-year dependent retirement rates and termination rates, with retirement rates for ages older than the “shut off” age entered as termination rates, and with a termination Benefit Definition included to value benefits for decrementing at ages that were retirement-eligible but no longer are after the amendment (or vice versa, have become retirement-eligible, as in the case of an amendment adding an early retirement “window” allowing retirement at earlier ages than before).
Similarly, in order to obtain accurate results for annuities with COLAs applied, an annuity payment form, in the initial benefit, cannot be replaced with a lump sum payment form, in the replacement benefit (or vice versa). Note: replacing an annuity without COLAs with a lump sum generally will produce accurate results in total, but the “bucketing” of results by payment form will not reflect the change to a new payment form after amendment. Thus to change a benefit’s payment form, create two (“dummy”) Benefit Definitions with a zero Benefit formula: one should reflect the plan’s current payment form (“old”) and the other should reflect the new payment form after plan amendment.