Vesting - German pension mode
Unless overridden under the Vesting topic of an accrual definition type of Benefit Formula Component, ProVal applies “default” vesting to the component; thus the Apply default vesting box is preset with a check mark. Remove the check mark to override default vesting.
Because the parameters of this topic override the default vesting calculations only for this Benefit Formula Component, you may have multiple components with different treatment of vesting within a single Benefit Definition. For example, Benefit Promises with grandfathered pure defined benefit (DB) formulas plus ongoing contribution-related (CRDB) formulas could reflect custom vesting on multiple contribution-related components in order to achieve the proper vesting treatment. Similarly, to reflect the greater of legal vesting or contractual vesting, the user may create two different Benefit Formula Components with different vesting parameters and take the greater of the two in the Benefit formula of the Benefit Definition.
The default vesting ProVal uses is determined by the setting of the component’s Accrual format parameter, the contingency associated with the benefit and the elections made under the Vesting Proration Method topic of the Benefit Promise.
For Benefit Formula Components whose Component type is “Accrual definition”, if the Accrual format is “final average” or “basis only”, the default vesting is as follows:
The Accrual Definition will be evaluated with accrual rates through the second decrement for death and disability benefits, and either through the retirement decrement or projected to the Normal Retirement Date for retirement benefits, depending upon the election made under the Vesting Proration Method topic of the Benefit Promise.
The component value will be multiplied by a pro rata temporis vesting fraction, equal to service at termination divided by service at normal retirement date, when the component is used in a death or disability benefit, and divided by service at either normal retirement date or second decrement, depending on the elections made under the Vesting Proration Method topic of the Benefit Promise, when the component is used in a retirement benefit.
Eligibility for vesting will be evaluated using the legal minimums built into ProVal and the component value will be zeroed out when such eligibility is not met.
For Benefit Promise dates before January 1, 2001, the claim is legally vested (i.e., the component is nonzero) if
the duration of the promise is at least 10 years, the participant has at least 10 years of legal vesting service and is at least 35 years old, or
the duration of the promise is at least 3 years, the participant has at least 12 years of legal vesting service and is at least 35 years old.
For Benefit Promise dates between January 1, 2001 and December 31, 2008, the claim is legally vested if the duration of the promise is at least 5 years and the participant is at least 30 years old.
For Benefit Promise dates made after December 31, 2008, the claim is legally vested if the duration of the promise is at least 5 years and the participant is at least 25 years old.
Thus the Service continues after termination box and the Apply pro rata temporis fraction box are preset as checked and the Not legally vested option is preselected for the Value of component is zero if parameter.
For accrual definition Benefit Formula Components with a “career average” or “cash balance” Accrual format, the default vesting is:
The Accrual Definition will be evaluated by stopping accruals at termination (occurrence of first decrement). Crediting rates (applicable to cash balance components) will continue to the second decrement.
No pro rata temporis fraction will be applied.
Eligibility for vesting will be evaluated using the legal minimums built into ProVal (please see above) and the component value will be zeroed out when such eligibility is not met.
Thus the Apply pro rata temporis fraction box is preset as unchecked and the Not legally vested option is preselected for the Value of component is zero if parameter. For career average components, the Service continues after termination box is preset to unchecked. For cash balance components, the Continue interest credits after termination option is preselected for the Service and interest credits parameter.
If the Apply default vesting box is checked, the remaining parameters are inaccessible.
For any of the four Accrual format selections, the initial (i.e., preset by ProVal), dimmed, parameter settings reflect ProVal's assumptions about this component’s (default) vesting. Uncheck the box if the desired vesting provisions are other than the default, either because they are contractual vesting provisions or because legal vesting has changed over time and the current default is not appropriate for this component; thus this box may be helpful if not checked, when coding, for example, pre-2001 benefit promises, plan changes and contractual vesting that differs from legal vesting.
For non-cash balance components, you may then check the Service continues after termination box, to indicate continued benefit service accrual after the first decrement (aka “termination”), until the second decrement (or, if so specified in the Benefit Promise and for retirement benefits only, projected to the Normal Retirement Date). To indicate that benefit service accrual ceases at termination, do not check the Service continues after termination box. Note that if service continues after termination, it is projected to either the second decrement or to the normal retirement date, depending upon the benefit contingency and the Benefit Promise’s Vesting Proration Method parameters.
For cash balance components, you have three options under the Service and interest credits parameter. Select Continue interest credits after termination to indicate that account balances grow between first and second decrement with interest only. Select Continue service and interest credits after termination if balances grow with both service and interest between first and second decrement. Select Freeze service and interest credits at termination if account balances are completely frozen at first decrement.
The Apply pro rata temporis fraction parameter controls whether the component is multiplied by a vesting fraction or not, according to whether this box is checked or not checked. Typically, a vesting fraction is applied when service is projected and not applied when service is frozen at termination.
Regardless of the setting of these two check boxes, for Benefit Definitions initiated by the “Termination” contingency, Accrual Definitions apply vesting eligibility but not a pro rata temporis fraction. In addition, Benefit Formula Component values for a Component type other than “Accrual definition”, such as tables, constants and database fields, reflect benefit service accumulated to the second decrement, with no vesting eligibility applied. Also, increase rates associated with these components are applied up to the second decrement in cases where there is a second decrement. Accrual Basis Component values freeze at the first decrement, effectively freezing increase rates on the Accrual Basis Components at the first decrement as well.
Note that the differing treatment of career average and cash balance components, versus final average and basis only components, with respect to default vesting is the same regardless of the Benefit Promise date. Therefore if a career average component is used in a contribution-related defined Benefit Promise with a Benefit Promise date parameter value before 2001, the default will not be legally correct and will have to be overridden by use of the parameters available under the Vesting topic of the Accrual Definition.
The Value of component is zero if parameter controls the vesting eligibility. Select the Not legally vested option to apply the vesting eligibility based on promise date (described above), or select The following (contractual vesting) requirement has not been met option to specify an alternative set of Age / Service / Points at least conditions for contractual vesting eligibility that differs from the legal minimum. Enter the Age that must be attained, the Service that must be completed and the Points (age + service) that must have been accumulated by the time of (the relevant) decrement (or perhaps by Normal Retirement Date) for the component value to be nonzero. For more information about entering values in the grid, and how ProVal processes these input values (e.g., with respect to treating age and service values entered as exact vs. rounded requirements), see the discussion of the Conditions grid for the Eligibility section of the Benefit Definition.