QUESTION: My plan provides that if retirement is postponed past the normal retirement date, the pension amount will be the greater of (1) the accrued benefit as of normal retirement date with an actuarial increase and (2) the benefit accrued as of the delayed (or postponed) retirement date. How can I code this?

ANSWER: As with an early retirement reduction, you have to define a late retirement increase in the benefit formula and multiply it by the accrued normal retirement benefit (NRB).

Define the NRB as an accrual definition Benefit Formula Component in which you check the “Freeze accrual basis and rates at age” box of the Projection & Freeze Ages topic and enter the normal retirement age (NRA) or, if NRA varies by participant, select the database field that contains the NRA.

Next, define the adjustment factor to multiply it by. If the plan provisions express the delayed retirement increase as a true actuarial equivalent on some mortality and interest basis (rather than as a set of tabular factors, which is relatively easy to code), the adjustment is the ratio of two lump sum factor Benefit Formula Components, A divided by B:

A is the present value (PV), at normal retirement date (NRD), of a $1 annual benefit commencing immediately at NRD – as such, its value does not vary with the decrement date.  This lump sum factor should have both the "Youngest Recognized Age" and "Oldest Recognized Age" set equal to NRA. 

B is the PV at NRD of a $1 annual benefit commencing at the postponed retirement date (PRD), that is, PV of a deferred annuity, where the deferral age is the age at decrement – this is the complex part of the coding. You need to define several lump sum factors, one for each “post-NRA” age at decrement (ending no earlier than the oldest age of active records currently in the database, which might be older than the 100% retirement age in your retirement rate Reference Table), and using them in the benefit formula of separate Benefit Definitions, one for retirement up to and including NRA and one for each post-NRA age at retirement (coded by setting the eligibility Exceptions age one year older than the eligibility Conditions age). Each lump sum factor has to have an “Oldest Recognized Age” set equal to NRA.

Note:  If a Core Projection will not be run or if interest and mortality bases do not vary with the valuation date, you may instead code the product of NRB and A as a single, constant type, of Benefit Formula Component.​

If there is no forfeiture upon death between the normal and late retirement dates, then define a mortality table of the “Age by Pre / post-commencement” type, set its rates to zero during the Pre-Commencement period and select this table, under the Lump Sum & Optional Payment Forms topic of Valuation Assumptions, as the mortality basis for component B.

If NRD varies by participant, A can be defined as a constant varying by a coded field representing the record’s NRA.  In the benefit formula, use Boolean logic or IF / THEN / ELSE statements to select, according to the field identifying the NRA, the set of lump sum factors for B, because the set (for deferral to ages NRA+1, NRA+2, etc.) will differ for each NRA (i.e., the lump sum factors are coded with different oldest ages, as well as different deferral ages for the underlying annuity payment form).

Note: Because the benefit formula involves a comparison of two accrued benefit amounts – benefit accrued at NRB with actuarial increase and benefit accrued at the, later, decrement age – if the larger benefit switches, for example, from the former to the latter, attribution issues may arise for projected unit credit and unit credit liabilities, particularly under the accrual rate proration attribution method. Although the PRB amount may exceed that of the increased NRB, the attributed value of the PRB might be less than that of the (fully attributed) increased NRB. Therefore, if attributed values are of concern, it may be necessary to multiply the formula for the increased NRB by an additional accrual definition Benefit Formula Component (Basis of “1”, Rates of “1” for one year, to obtain a component value of “1”), in which you use custom attribution rates to attribute the increased NRB according to the PRB accrual rates. See the Frequently Asked Questions article entitled Flat dollar plan with increasing benefit level for examples of techniques that can be used (albeit in a different context) to achieve different attribution results without changing the accrued and projected benefit amounts. (The parameter coding required depends on the specifics of the plan benefit formula and desired method of attributing the liability and can be complicated.)