In a Benefit Component Table, you may generate annuity present values at various lookup ages and store the values in the table by selecting the Annuity option after checking the Calculate factors box, and then clicking the Params... button to specify the parameters. There are three (3) sections on the dialog box in addition to the Form Type (single or joint life annuity):
- Mortality, interest & timing includes the Mortality rates, Valuation year if applicable, Interest rate (four (4) rate types are currently available), payment frequency and payment timing.
- Additional form parameters includes Deferral, Certain, and Temporary options (none, to age or for period (years), and the COLA rate(s).
- Joint and survivor annuities parameters are available (unghosted) if Joint Life Annuity is selected as the Form Type. This section specifies the Beneficiary mortality rates, Fraction of joint & survivor benefit received when, Number of years husband is older than wife and Fraction of population receiving J&S.
Within the Mortality, interest & timing parameters, for Mortality rates, select the primary annuitant mortality rates from the list of mortality rate tables in the current project. Note that:
- The mortality table cannot have a service dimension.
- If you are creating a new table and have chosen the unisex option for table type but select a sex-distinct mortality table, ProAdmin will calculate both male and female rates and convert your table to a sex-distinct one. Similarly, if you are creating a new table and have chosen the sex-distinct option for table type but select a unisex mortality table, ProAdmin will calculate unisex rates and convert your table to a unisex one.
- Annuity values will be generated only for lookup ages in the range of the table, where this range is defined by the Row & Column Limits option of the Options button.
- If you select a dynamic (a.k.a. generation) mortality table (i.e., a table with a projection scale applied to reflect mortality improvement over time), the Valuation year parameter becomes accessible. This is the 4-digit calendar year (which can be after, the same as or before the base year of the mortality table) that lookup ages will be associated with. For example, to calculate a life annuity present value as of age 65 in the year 2000, based on mortality rates of the Uninsured Pensioner 1994 Table projected by Scale AA, select “UP-1994 Table with Projection Scale AA” for mortality rates and enter “2000” as the valuation year. ProAdmin will compute the desired present value using an age 65 mortality rate improved 6 years by Scale AA to the year 2000, an age 66 mortality rate improved 7 years to the year 2001, and so forth. (Similarly, ProAdmin will compute a present value as of age 64 using an age 64 mortality rate improved for 6 years to 2000, an age 65 mortality rate improved for 7 years to 2001, and so forth.) For details about application of projection scales to mortality rates in dynamic tables, see the Technical Reference article entitled Mortality improvement generational mortality.
The Interest rate used to discount annuity payments to the table lookup age may be a static rate (same for all years between the payment age and the lookup age), segment rates, variable rate (depends upon duration from the lookup age to the year associated with the interest rate) or “PBGC rates”. Enter an interest rate as a number between zero and 1 (not as a percentage).
To define variable rates, click the Rates button and fill in the spreadsheet in the next (Variable Interest Rate) dialog box. Complete a row for each interest rate. For example, if the interest rate is 5% for the first 10 years after the lookup age, 6% for the next 10 years and 7% thereafter, then code the screen as follows
ProAdmin fills in the To column automatically, and the last rate will be used for the last year entered and all years thereafter up to the payment age. Note that the From box in the first row cannot be completed. Our example involved only three interest rates: if you have several interest rates for the period between payment age and lookup age, you may need to press the ENTER key, to create a new row, when you get to the bottom of the spreadsheet.
PBGC rates is a set of four interest rates, each one applicable for a different period between payment age and lookup age: during the annuity payment period; for 7 years prior to the annuity commencement age; for the previous 8 years prior to the annuity commencement age; and during the period between the lookup age and 15 years prior to the annuity commencement age. That is, this option associates the interest rates by measuring duration backward from commencement age to lookup age, rather than forward from lookup age to payment age. Click the Rates button to fill in the four PBGC rates.
Payment frequency specifies how many payments, in equal installments, will be made throughout the year. Regardless of your selection for this parameter, ProAdmin computes annuity values for a total annual payment of $1.
Payment timing indicates payment at the beginning or end of the payment period defined by the payment frequency parameter. Select Beginning of period for an annuity-due or End of period for an annuity-immediate.
Within the Additional form parameters, indicate benefit Deferral for payments that do not commence immediately by entering either the payment commencement to age or the length of the deferral for period (years). Select none for immediate benefits. If a deferred benefit is specified, an immediate benefit will be valued for a lookup age older than the commencement age.
The Certain period is defined by indicating the length of the certain for period (years) or the to age at which it expires (i.e., the first age at which the member no longer receives a payment). ProAdmin begins the certain period at the annuity commencement age indicated by the Deferral parameter. If the certain period is to expire at an age attained at or prior to the commencement age, then the annuity will have no certain period.
Indicate that a benefit is Temporary by entering the length of the for payment period (years) or the to age at which benefits cease (i.e., the first age at which the member no longer receives a payment). ProAdmin begins the temporary period at the annuity commencement age indicated by the Deferral parameter. If the cessation age is attained at or prior to the commencement age, then the annuity value will be zero.
You may apply cost-of-living adjustments (COLA’s) to the payments. The COLA rate during payment period is used to increase benefits after payment has commenced, while the COLA rate during deferral period is applied from the lookup age to the payment commencement age. If the annuity does not have a COLA, then code the parameter(s) as zero. The COLA rate(s) may be any number between zero and 1.
If you select a joint life annuity, the Joint & survivor annuities parameters become accessible.
Within the Joint & survivor annuities section, the Beneficiary mortality rates table need not be same as the primary annuitant’s mortality table; in particular, the tables may differ with respect to the sex dimension. If they are unisex and the same, with no age set back applied, then the resultant annuity values will also be unisex. Otherwise, the resultant values generally will be sex-distinct, regardless of whether you specified a unisex or sex-distinct table type to contain your annuity values. ProAdmin will compute according to your choice of parameter settings and adjust the table’s unisex/sex-distinct setting, if necessary. As with primary annuitant mortality, the beneficiary mortality table cannot have a service dimension.
The Fraction of Joint & Survivor benefit received when parameters (Both member and beneficiary are alive, Only the member is alive, and Only the beneficiary is alive) are used to describe joint and survivor payment forms. If, for example, 1, 1 and 0.5 are entered for these parameters, then the payment form will be a 50% joint & survivor annuity (i.e., 1 paid when the member is alive and 0.5 paid when only the beneficiary is alive) for the fraction of the population receiving a joint and survivor annuity and a life annuity for the rest.
Number of years husband is older than wife is specified separately for male and female members. This parameter is used to determine the appropriate ages for beneficiary mortality table lookups. Because the beneficiary is assumed to be the member’s spouse, the sex for beneficiary table lookups is always the opposite of the member’s sex.
Fraction of population receiving J&S (blends the J&S and life annuity factors) is specified separately for male and female members. Enter the fraction as a number between 0 (none receiving a J&S annuity) and 1 (all receiving a J&S annuity). When this fraction is less than 1, some members are valued as receiving a single life annuity and ProAdmin blends the J&S and life annuity factors (not the underlying mortality rates).
When all parameters are entered, click Generate to calculate the factors and exit the Calculate Annuity Factors parameters dialog box. ProAdmin will calculate annuity values and populate the benefit component table with them. If the table already contains values, ProAdmin will warn you that your calculation will replace values currently in the table. To exit the Calculate Annuity Factors parameters dialog box without replacing the current values, click Cancel.