The Annuity Purchase Liability topic of funding Valuation Assumptions specifies the interest and mortality rates used to discount benefit payments to the valuation date to derive the annuity purchase portion of the solvency liability. For guidance, see the applicable provincial legislation and promulgations (standards of practice, educational notes, etc.) of the Canadian Institute of Actuaries. For details about ProVal’s methodology for computing solvency liability, see the Canadian Solvency Liability calculations Technical Reference article.

You may indicate that solvency liability be computed for some plan participants on an annuity purchase basis. To do so, uncheck the Same as transfer value (no separate annuity purchase liability calculated) box and complete the annuity purchase rate parameters. Note that if the box is checked, all participants will be valued on a transfer value basis only (and the remaining parameters of the Annuity Purchase Liability dialog box are irrelevant and become inaccessible).

The Immediate Annuity Purchase Interest Rate is entered as a constant.

The annuity purchase liability mortality basis is specified separately from the funding valuation mortality basis indicated under the Decrements topic of these Valuation Assumptions; select the Mortality rates from the list of mortality rate reference tables in the current Project, or click the button to access the library to create and modify mortality rate tables. To base the annuity purchase liability on the same mortality table(s) as specified for ongoing funding results, select the “<use funding valuation assumptions>” option.

Enter the Eligibility for Immediate Annuity Purchase assumptions:

1. Active participants who meet the following conditions: Age/Service/Points (age + service), as of the valuation date, at least equal to the values entered in the grid. Each row in the grid is interpreted as having “and” linking the requirements. For example, someone must both be 55 years old and have 5 years of service to meet the age/service/points criteria if the row has 55 and 5 in it. An individual is considered to have met the criteria at the earliest satisfaction of two rows from the grid. For example, to be valued on the annuity purchase interest rate basis, someone need be 60 years old or be 55 years old with 5 years of service if there are two rows, one row that specifies age 55 and 5 years of service and another row that specifies age 60. Satisfaction of the criteria is determined with no rounding. For example, an individual 54.9 years old will not be considered to have met an age 55 requirement. If you wish to apply specific rounding requirements for age, you may code the age requirement as 54.5. If you wish to apply specific rounding requirements for service, use a Service Definition.

The Service based on parameter determines how to measure service when applying service-based and points-based criteria. You may specify either a database Field or a Service Definition. If you specify a Field, you may refer to a date field from which to calculate service or to a numeric field containing service at the valuation date. However, particularly if service is not counted immediately from hire (e.g., service is measured from the date of entry into the plan), you may prefer to specify a date field. Select the desired field from among the numeric and date fields unhidden in the current Project or, if you need fractional service accruals (e.g., hours-related service) or rounding (e.g., count partial years as full years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions. Service will be anticipated to increase by one year per calendar year, or, if you have specified a Service Definition, service will be anticipated to increase according to the Service accruals parameter of the Service Definition.

Active participants not meeting the criteria for being valued on the immediate annuity purchase rate basis will be valued on the transfer value interest rate basis unless you specify that some active participants should be valued on the deferred annuity interest rate basis (see the discussion below).

2. Inactive participants currently in receipt as of the valuation date. When you indicate computation of solvency liability for (at least) some plan participants using annuity purchase interest rates, all participants currently in receipt of benefits are valued using the specified immediate annuity purchase interest rate. An inactive participant is deemed to be “currently in receipt” if any of the participant’s benefits is paid on an annuity type of Payment Form under which payment has already commenced as of the valuation date. (Note: To determine whether payment has commenced, ProVal compares rounded age at the commencement date, indicated by the benefit commencement parameter of the inactive Payment Form, to rounded age at the valuation date. Thus if these parameters specify date fields, from which ProVal determines the corresponding rounded ages, it is possible for a participant whose annuity starts shortly after the valuation date to be considered in receipt.) If the participant has any annuity benefits in pay status as of the valuation date, then all of the participant’s Inactive Benefits are considered in pay status, including any benefits for which the Payment Form is life insurance coverage, a lump sum payment or a post-decrement death benefit. (The last-mentioned Payment Form would be atypical in a Canadian registered plan, but ProVal’s pension Payment Forms are available in all pension modes). Likewise, a decrementing active participant (or, in a forecast, an emerging inactive participant) is deemed to be “currently in receipt” if any of the participant’s benefits is paid on an annuity Payment Form type under which payment commences immediately at decrement. Note that if an inactive participant has no annuity benefits (e.g., there is one Inactive Benefit with a lump sum Payment Form), then the participant is not deemed “currently in receipt”. (The ProVal Payment Forms not considered annuities are the lump sum, life insurance and post-decrement death benefit Payment Forms.)

3. Inactives not currently in receipt but who at least have attained the age specified as of the valuation date. If you indicate computation of solvency liability (for at least some plan participants) using annuity purchase interest rates, you may value some inactive participants not currently in receipt of benefits (i.e., those participants who meet the specified age criterion) using the specified immediate annuity purchase interest rate. (How ProVal determines whether an inactive participant is currently in receipt is discussed in the preceding paragraph.) You may specify either a Constant or a database Field.  (If you select a Field, it may contain decimal numbers.  However, this will be compared to the rounded participant age.  So a value of 54.1 will give the same results as a value of 55.)

To value all inactive participants not currently receiving benefits on the immediate annuity purchase basis, set the age low enough to make all such participants eligible. To value no inactive participants on the immediate annuity purchase basis unless they are currently receiving benefits, set the age at 99. 

In a projection, this age (set either by constant or field) will be used for decrementing actives as well as initial inactives.  If using a Field, the field must contain a valid value for all participants (both active and inactive) included in the Valuation or Core Projection, otherwise the records will be excluded. You may use data defaults in Census Specifications to set values for the field to ensure the field is set for all records.

For participants who are eligible for an immediate annuity purchase, if you wish to measure solvency liability as a composite of the annuity purchase and transfer value liabilities, check the Blend Annuity Purchase / Transfer Value for eligible participants box and click the Parameters button that becomes accessible. In the ensuing dialog box, you must specify the percentage for actives and inactives not currently in receipt who should be measured with immediate annuity purchase assumptions.  The remainder will be measured using transfer value assumptions.  For the actives, you must select whether the transfer value should be measured based on the benefits the participant is eligible for, or if the transfer value should be based only on the termination benefits.  If you are basing the transfer value on the eligible benefits, you may check the box to use transfer value if greater than IAP. Selecting this option effectively values the solvency liability as the maximum of the transfer value and immediate annuity purchase for those participant eligible for an immediate annuity purchase.  The maximum of the transfer value and annuity purchase is determined for each participant based on the sum of all benefits (i.e., the maximum is not determined separately for each benefit).  If you are basing the transfer value on the termination benefit, you may check the box to use only IAP upon reaching unreduced payment age.  Selecting this option will measure the solvency liability based only on the immediate annuity purchase for participants who have attained the requirements for an unreduced payment.  When selecting this option, you must complete the eligibility parameters which define the unreduced payment age.

Enter the Deferred annuity purchase rate to be used to value the selected percentages of active and inactive plan participants. This text field becomes accessible once you have entered a non-zero percentage for either of the following parameters:

1. Percent of active participants not eligible for the immediate rate. The specified percentage of active participants not meeting the criteria to be valued on the immediate annuity purchase interest rate basis will be valued on the deferred annuity purchase interest rate basis and the remainder of active participants not valued on the immediate annuity purchase interest rate basis (100% minus the % entered here) will be valued on the transfer value interest rate basis. Thus if you enter 100 (100%), all active participants who do not meet the criteria for the immediate annuity purchase basis will be valued on the deferred annuity purchase basis.

2. Percent of inactive participants not eligible for the immediate rate. The specified percentage of inactive participants not meeting the criteria to be valued on the immediate annuity purchase interest rate basis will be valued on the deferred annuity purchase interest rate basis and the remainder of inactive participants not valued on the immediate annuity purchase interest rate basis (100% minus the % entered here) will be valued on the transfer value interest rate basis. Thus if you enter 100 (100%), all inactive participants whose benefits are not deemed currently in receipt and who do not meet the age criterion for the immediate annuity purchase basis will be valued on the deferred annuity purchase basis.