German pension mode

In German Tax valuations, ProVal calculates the Teilwert and PSVaG liabilities for each Benefit Promise. The calculations for Pension, Deferred Compensation Ongoing, Deferred Compensation Optional and Jubilee promises are discussed in separate sections below.

 

Pension, Deferred Compensation Ongoing and Deferred Compensation Optional Promises

ProVal calculates the Teilwert Liability according to the following methodology: the Teilwert Premium for a Benefit Promise is determined as the level dollar amount over a participant’s career that can fund the Benefit Promise, reflecting all benefits in the promise as well as any Transfer Value. The Teilwert Liability is then determined as the excess of the present value of future benefits over the present value of future premiums. Details and formulas are provided below.

The PSVaG Liability represents the amount insured by the Pension Protection Mutual Insurance Association (Der Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit); liability calculations are similar to those for Teilwert, although pensions are insured only to specific caps, as detailed below.

 

Teilwert Liability

The Teilwert Premium is determined separately for each Benefit Promise and is equal to the present value of future benefits at entry across all benefits within the promise, less Transfer Value for the participant, divided by the present value of all years of future service. That is,

Where:

the numerator cannot be less than 0 (only applies if the checkbox Apply German statutory rules (incl. minimum funding age) in Teilwert Parameters is checked)

 represents the sum over all benefits k within a Benefit Promise BP,

^kPVB_e  is the present value of future benefits from entry age for Benefit Definition k, and

PVService_e is the present value of future service from entry age.

Entry Age for these calculations is the age at the beginning of the fiscal year prior to the date of funding (entered under the Teilwert Parameters topic of Tax/Funding Valuation Assumptions). If the checkbox Apply German statutory rules (incl. minimum funding age) in Teilwert Parameters is checked, the entry age will be adjusted to be not less than

Benefit Promise date	First Funding Age
x < 2001	Age: 30
2001 ≤ x < 2009	Age: 28
2009 ≤ x < 2018	Age: 27
2018 ≤ x	Age: 23

For active participants under the first funding age but who are nonetheless legally vested (as described below), the Teilwert Liability for pension (non-Jubilee) promises is determined as the present value of the vested benefit (PVVB) determined assuming the participant terminates immediately on the valuation date.  

For participants over the first funding age, the Teilwert Liability for the Benefit Promise is calculated at the valuation date as the present value of future benefits less the present value of future premiums.

Where:

^kPVB_x   is the present value of future benefits at the valuation date for Benefit Definition k, and

PVService_x  is the present value of future service from the valuation date.

Note that in ProVal sample life reports, the Transfer Value and present values of service and benefits at entry are shown as of the participant’s attained age on the valuation date, having been adjusted forward with interest and mortality.

 

PSVaG Liability

The PSVaG insures pension benefits in Germany up to specified payment amounts for participants who are legally vested. ProVal automatically determines legal vesting for this purpose, as described below, and also excludes from the liability any Benefit Definitions that do not have a check in the Include in PSVaG Liability box. In addition, certain plan provisions may need to be reflected differently for PSVaG Liability than for the Teilwert, such as unisex treatment. In these cases, a separate Plan Definition and Benefit Promise coding can be used to reflect these alternative provisions, with the PSVaG Liability calculated in a separate valuation from the Teilwert Liability.

The PSVaG maximum insured amount (i.e. the “cap”) for annuities is three times the regulatory amount known as the General Reference Value (i.e. “Bezugsgröße”), while the cap for lump sums is thirty times the General Reference Value. The General Reference Value increases based on national income levels and is based on a statutory Average Income value (i.e. “Durchschnittsentgelt”) which varies according to each participant’s Federal State and is updated annually. For further information about these items, see Regulatory Data.

Furthermore, the cap is reduced if benefits are included in a separate valuation, and the reflected benefits may be reduced in the case of significant owners. These reduction fractions are specified under the PSVaG Liability topic of Tax/Funding Valuation Assumptions. The benefit caps are evaluated separately for benefits payable to the member and spouse, and separately by decrement (for active participants and terminated vested participants). ProVal approaches the PSVaG benefit cap calculations as follows:

1. The annuity and lump sum caps for the valuation year are determined based on the General Reference Value for the participant’s Federal State.

2. Caps are multiplied by the fraction of cap remaining to reflect benefits previously valued.

3. Benefits are multiplied by the significant owner coverage fraction.

4. Active retirement benefits are only insured from the minimum age, before which any payable annuity benefits are changed to 0. (Lump sums are not affected.) ProVal uses a minimum age of 60 when Benefit Promise dates precede 2012, and 62 otherwise.

5. For active and terminated vested participants, if multiple Benefit Definitions exist with the same decrement, benefit amounts payable at each decrement age (which reflect post-decrement probabilities and eligibilities) and payment age are aggregated for comparison against the benefit cap. For inactive participants, if multiple benefits are payable, the benefits payable at each payment age are aggregated for comparison against the benefit cap.

6. Lump sum benefits are considered first, and the “remaining” cap is compared against the sum of other (annuity) benefits. Note that life insurance benefits typically represent a short period of annuity benefits and are therefore considered among the annuity benefits.

7. Spousal (i.e. widow or widower) benefits are considered separately, with a separate capped amount payable to the spouse. Note that survivor fractions are applied before comparison against the cap. (Post-decrement death benefit parameters are considered separately, after the cap.)

8. The PSVaG fraction of cap remaining (after all valuation retirement benefits are reflected) is available as a Valuation’s Individual Results item. The calculation is based on the member’s retirement benefits at normal retirement date (or attained age if later) for active and terminated vested participants, and the valuation date for inactive participants. If benefit payments are not level (e.g. there is a COLA), the fraction of cap remaining is an average value over all payment ages with non-zero benefits. This output item is useful if a single person has insurable benefits to be valued in subsequent valuations.

 

Deferred Compensation Ongoing Promises

If the Benefit Promise date is before 1/1/2001, the Teilwert and PSVaG liability and normal cost are calculated as described above. lf the Benefit Promise date is on or after 1/1/2001, each participant’s Teilwert (or PSVaG) liability will be set equal to the maximum of the Teilwert (or PSVaG) liability and the PVAB liability; the normal cost will be the corresponding normal cost for the liability type. The PVAB liability is calculated under the Unit Credit method, as parameterized under the Additional Liabilities topic of the Valuation Assumptions.

 

Deferred Compensation Optional Promises

If the Benefit Promise date is before 1/1/2001, the Teilwert and PSVaG liability and normal cost are calculated as described above. lf the Benefit Promise date is on or after 1/1/2001, each participant’s Teilwert (or PSVaG) liability will be set equal to the PVAB liability; the normal cost will be the corresponding normal cost for the liability type. The PVAB liability is calculated under the Unit Credit method, as parameterized under the Additional Liabilities topic of the Valuation Assumptions. The Benefit Promise date (if after 1/1/2001) can differ from the Benefit Promise date in other Benefit Promises for the Plan.

 

Legal vesting (applicable only to Pension Promises)

ProVal determines legal vesting based on the benefit promise date specified. ProVal does not distinguish between employer and employee-financed benefits for legal vesting purposes; all benefits are either vested or non-vested based on the promise date-dependent age and service requirements.

Benefit Promise date	Legal Vesting rule
x < 2001	Age: 35 & 10 years of benefit promise or Age: 35 & 12 years of service & 3 years of benefit promise
2001 ≤ x < 2009	Age: 30 & 5 years of benefit promise
2009 ≤ x < 2018	Age: 25 & 5 years of benefit promise
2018 ≤ x	Age: 21 & 3 years of benefit promise

 

Jubilee Promises

 

For Jubilee promises, the Teilwert for each benefit is determined independently from other benefits, and the Teilwert for the Benefit Promise is the sum of the Teilwert Liability for all benefits in that promise. For each in-service benefit, the Teilwert Premium is determined as the level dollar amount that can fund the benefit over the participant’s career up to the point of eligibility. The Teilwert Liability for that benefit is then determined as the present value of future benefits less the present value of future premiums. Then, the Teilwert for that benefit as of 31 December 1992 is calculated and is subtracted from the Teilwert to obtain the liability measure used in the Tax Reserve calculation. Details and formulas are provided below.

 

Teilwert Liability

The Teilwert Premium is determined separately for each Benefit Definition in a Jubilee promise. For In-Service benefits, this premium is equal to the present value of future benefits at entry for that benefit (taking into account only benefits payable on or after the valuation date), divided by the present value of future service from entry until eligibility for the benefit. No Transfer Value is taken into account. That is,

where:

is the present value of future benefits payable on or after age x for Benefit Definition k, valued at entry age e

is the present value of the n years of future service from entry age to benefit eligibility

is the number of years of service required to receive the In-Service benefit

 

Entry Age for these calculations is the age at the beginning of the fiscal year that contains the Benefit Promise date. The end of the funding span is the year of eligibility for the benefit.

 

Teilwert Liability for the Benefit Definition is then calculated at the valuation date as the present value of future benefits less the present value of future premiums.

where:

is the present value of future benefits at the valuation date for Benefit Definition k

is the present value of service from the valuation date until eligibility for the In-Service benefit

 

If the checkbox Apply German statutory rules (incl. minimum funding age) in Teilwert Parameters is checked, then once this liability is determined, the 1992 Teilwert is calculated and subtracted from the liability to obtain the liability measure used in the Tax Reserve calculation. The 1992 Teilwert is calculated as above, but using December 31, 1992 as the valuation date. Only benefits payable on or after the true current valuation date are taken into account. The 1992 Teilwert is zero for any participant with a Benefit Promise date after 1992.

 

If a Jubilee promise contains death, disability, or retirement benefits, these are considered ancillary benefits associated with In-Service benefits. ProVal will determine which In-Service benefit is associated with each ancillary benefit by examining the eligibility requirements for each benefit and finding the next In-Service benefit subsequent to the ancillary benefit. For example, if a death benefit in a Jubilee promise has an eligibility condition of 22 years of service, and there are two In-Service benefits, one requiring 25 years of service and one requiring 40 years of service, ProVal will associate the death benefit with the 25-year In-Service benefit. Once associated in this manner, the funding span for the In-Service benefit is used as the funding span for all its associated ancillary benefits. Therefore, in this example, the death benefit will be funded over the 25 years beginning at entry. However, note that death benefits in Jubilee promise are excluded from the Teilwert.

 

Note that if the checkbox Apply German statutory rules (incl. minimum funding age) in Teilwert Parameters is checked, then

• The offset for service prior to 1992 (discussed above) will be applied
• The liability for any participant whose funding age is less than 11 years from the current valuation date is treated as zero
• In-Service benefits with eligibility requiring less than 15 years of service are excluded from the Teilwert
• In-Service benefits with an eligibility date that occurs after the actuarial retirement date or before the valuation date are excluded from the Teilwert
• The decrement age for in-service benefits is set to the valuation date anniversary closest to the in-service eligibility date. For example, if the current valuation date is 31 Dec 2015 and the in-service eligibility date is 1 May 2023, then the in-service decrement will occur on 31 Dec 2022 (which is closer to 1 May 2023 than 31 Dec 2023 is). Assuming date of birth is 10 Mar 1969, the in-service decrement age is 54.

 

Legal Vesting and PSVaG

ProVal will treat all benefits in Jubilee promises as being legally non-vested. They are therefore excluded from the PSVaG liability. Furthermore, no post-termination benefits will apply to these benefits.