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Benefit Formula Components

Benefit Formula Components are the fundamental building blocks from which the pension Benefit formula is constructed or the OPEB gross benefit and/or participant contribution Benefit formulas are constructed. There are seven (7) types of Benefit Formula Components:

In the pension modes, ProVal generally calculates Benefit Formula Component values as of the decrement date for active plan members. See details below on exceptions for tables with lookup at commencement age and accrual definitions using projection age.

In OPEB mode, ProVal calculates Benefit Formula Component values as of the date of decrement and each payment date thereafter for active plan members and their spouses. For inactive members and their spouses (i.e., inactive as of the current valuation date), ProVal calculates Benefit Formula Component values at the valuation date and each payment date thereafter.

For the in-service contingency, available in all modes, ProVal calculates Benefit Formula Component values as of each valuation date anniversary while the plan member is in active service.

All benefit component definitions have three parameters in common:

Name must begin with a character and may consist of characters, numbers and underscores. When naming a Benefit Formula Component that represents a date, adding the three characters _DT to the end of the component’s name will display the date in readable date format in the sample life output.

Description can be a phrase of any length and may contain any character or symbol.

Component type indicates the class of Benefit Formula Component of which this object is a member. The rest of the screen will change to present only the parameters that apply to this type of Benefit Formula Component.

Accrual definitions are discussed under a separate Help topic; the other types of Benefit Formula Component are described below.

 

Constant

This type of component may be specified in one of three ways: 

If a component’s value depends on the year in which the decrement occurs, check the Apply increase rates to this component box to prompt a question about those increase rates in the Valuation Assumptions and Projection Assumptions sections of the Input menu. Increase rates may be entered as constant or calendar year dependent (varying by calendar year of decrement, or, for inactive members in OPEB mode, by calendar year of payment) or by reference to increase rate tables. In German Pension mode, check the Do not apply to post-termination benefits box if no increase rates should be applied between termination and second decrement. 

 

Database Field

This type of component may be either a database Field or a database Expression. Because benefit formulas do not refer directly to database names, create a component of this type to incorporate a reference to one or more database fields. You may then refer to the component in your formula. Alternatively, you may type the database field name into your formula; ProVal will offer to create the component for you, by reference to the database field of the same name.

When the component is a database Field rather than a database Expression, the ability to give the Benefit Formula Component the same name as the underlying field is particularly useful. If the Data Dictionary field referenced is a date, the sample life output will display the date in readable date format, instead of in numeric format (i.e., instead of displaying the number of days since 1/1/1900).

When the component is a database Expression, this type of component simply evaluates an arithmetic expression and returns the answer. The value returned will be constant over time. Consequently, fields that contain age, service or pay receive no special treatment. If these items should be projected over time, you may wish to use an accrual definition instead. If any date-type Data Dictionary fields are referenced in the Expression, the sample life output will display them in date format, instead of in numeric format (i.e., instead of displaying the number of days since 1/1/1900).

Select the database Field to which this Benefit Formula Component refers. Only numeric and date fields in the current Project are included in the list. Or you may click the New button to create a new database field for selection.

Instead you may select the Expression option; enter in the box the database expression itself, which may include any number of database fields. Pressing the F1 key when the cursor is in this box will summon a list of useful information, including the field names and available operators. Refer to the fields by simply typing their names. Database expressions may contain logical statements, which are evaluated as 1 if true and as 0 if false.

Use the Selection Library button to incorporate into your database expression a Selection Expression that you have already created and saved under the Selection Expressions command of the Database menu. Click the button to enter the Retrieve Selection Expression dialog box, in which you Pick a selection expression to retrieve from the library of expressions in the current Project.

If a component’s value depends on the year in which the decrement (all modes) or payment (OPEB mode only) occurs, check the Apply increase rates to this component box to prompt a question about those increase rates in the Valuation Assumptions and Projection Assumptions sections of the Input menu. Increase rates may be entered as constant or calendar year dependent (varying by calendar year of decrement, or, for inactive members in OPEB mode, by calendar year of payment) or by reference to increase rate tables. In German Pension mode, check the Do not apply to post-termination benefits box if no increase rates should be applied between termination and second decrement.

 

Lump Sum Factor

This type of component, available in the pension modes, allows you to vary the present value, as of the decrement date, of annuity payments in the Benefit formula according to the underlying interest and mortality assumptions, a consequence of the fact that this component type computes present values separately, during execution of the Valuation or Core Projection (of a forecast), for each liability calculation. For example, for a multiemployer funding Valuation in the U.S. qualified mode, if the payment form selected as the Normal form of a Benefit Definition is a lump sum type, representing the present value of an annuity, then the annuity present values used for current liability calculations can be based on the appropriate interest rate(s) and mortality if you select the lump sum factor option for the Component type instead of the table option, which returns the same present value regardless of whether the liability being computed is accrued liability under the actuarial cost method, RPA current liability, maximum deductible contribution basis current liability, etc..

The definition of the lump sum factor component includes only the annuity payment form underlying the component and how to “look up” the annuitant’s age and sex. The underlying mortality rates and interest rate(s) are entered elsewhere, under the Conversion Factors topic of Valuation Assumptions and/or Projection Assumptions.

Select the Annuity payment form upon which lump sum factor will be based from the list of payment forms already defined as an annuity type (other than the modified cash refund annuity) in the current Project, or click the button to access the Payment Form Library and create new payment forms or modify existing ones. Note that you are selecting a payment form that will be used only for computing the annuity present value that is returned as this component’s value, for use in the Benefit formula that determines the amount of the benefit, which is then paid out according to the Payment forms parameters of the Benefit Definition. Therefore, the lump sum factor component’s payment form will not determine the pattern of the stream of pension payments (for example, whether payments are temporary or continue for life); nor will it determine, in the U.S. qualified and U.S. public pension modes, the assumed pension commencement age for reducing or increasing the U.S. Internal Revenue Code Section 415(b) dollar limit for early or late benefit commencement, respectively. Rather, it is the Benefit Definition’s Payment Form parameter that determines the assumed payment stream and the early or late commencement age if the Benefit Definition’s Apply 415(b) maximum benefit limit box is checked.

Please note that the lump sum factor value is part of the benefit amount determined by the Benefit formula and thus affects the calculation of expected benefit payments.

Click the Advanced button to access the “Lump Sum Factor: Advanced” dialog box, in which you complete the remaining lump sum factor component parameters. These parameters, detailed in the following paragraphs, specify additional information needed to compute the present value of the selected annuity payment form underlying the lump sum value and tell ProVal how to determine the age (age and sex if used in a death Benefit Definition) to return the component value.

If you wish to include the specifications of cost-of-living adjustments (COLAs) entered in the valuation and projection assumptions for calculating the lump sum present value of the specified annuity payment form underlying the lump sum value, then check the Use valuation/projection assumption COLAs box. Alternatively, if your COLA assumption is simply a constant rate, you may uncheck the box and enter the constant assumed COLA rate during payment period and/or, if you have specified an underlying payment form with deferred benefit commencement for this lump sum factor component, the constant assumed COLA rate during deferral period. Enter the COLA rate(s) as a number, not as a percentage. Payment period COLAs start at the assumed annuity benefit commencement date; deferral period COLAs start at decrement and end at the assumed annuity benefit commencement date. Note that COLAs specified by these (lump sum component) COLA parameters are applied, in the computation of valuation liabilities, to determine the component’s value regardless of whether the Benefit Definition whose Benefit formula references the lump sum component has a check in the Apply COLAs from assumptions box.

ProVal will compute values for all ages from 15 to the oldest age of your mortality table (but not beyond age 120). The Youngest/Oldest Recognized Ages parameters restrict the age “lookup” of the lump sum factor value to a smaller range of ages. For example, if your Benefit formula for decrements prior to age 55 uses the lump sum value as of age 55, then you need the lump sum factor component to return the annuity value as of age 55 (not as of the decrement age) for decrements prior to 55. In this case, check the Use age r lump sum factor for all ages up to age r box and tell ProVal to return the r = 55 lump sum factor value for decrement ages younger than 55. That is, this box is checked to restrict the values returned to those for ages equal to or greater than the age specified in the parameter’s text box. Similarly, check the Use age r lump sum factor for all ages after age r box and tell ProVal to return the present value at the specified age for all older decrement ages. Thus, for example, if the lump sum value to be returned for decrement age 72 is the present value at age 70 (not at age 72) of an immediate life annuity, enter age 70 here (i.e., r = 70); ProVal will return the component value at age 70 for all older decrement ages as well. Note that the parameter refers to the member’s age regardless of whether the lump sum factor component is used in a death benefit, for which special considerations apply (see the discussion in a following paragraph).

For computing valuation lump sum factor values, if the interest basis varies by duration from decrement or if the mortality basis is a dynamic table (that is, dynamically generated as the table expected to be in effect at decrement), then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement. This substitution applies for all elements of determining the lump sum value. Thus, for example, if the mortality basis is dynamic, the decrement age is 40 and you entered 55 as the youngest recognized age, ProVal will return a value for the decrement date (when the plan member is age 40) that is the age 55 value from the slice of the dynamic table for the year in which age 55 is attained (not an age 55 value from the slice of the table for the year of decrement, when the member is age 40). Likewise, for computing experience lump sum factor values in a Core Projection, if the interest basis varies by duration from decrement, then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement.

In the Canadian registered mode, check the Use age on valuation date for Solvency & Windup liabilities box to look up lump sum factor values using the member’s current age, i.e., age on the valuation date. That is, for purposes of solvency and windup liability calculations, the lump sum factor value will be frozen at the valuation date, after application of the youngest/oldest recognized ages (if any are specified).

If the lump sum factor component is used in a Benefit Definition initiated by the retirement, termination or disability contingencies, member age and sex will be used to select the appropriate mortality rates for determining the present value of the underlying annuity payment form. If, however, the lump sum factor component is used in a Benefit Definition initiated by the death contingency, the present value of the underlying annuity payment form may be computed using either member or beneficiary age and sex to determine the underlying mortality rates. For example, if the death benefit in a plan with a life annuity normal form and normal retirement age of 65 is defined as the present value, paid as a lump sum at death, of the member’s accrued normal retirement benefit (i.e., a benefit commencing at the normal retirement age and paid on the normal form), then you could create a lump sum factor Benefit Formula Component, select a deferred to 65 life annuity as its underlying payment form, select a lump sum type for the Benefit Definition’s Payment Form parameter and check the When used in a death benefit, base primary mortality on the deceased member’s age/sex box; ProVal will base mortality on the member’s age and sex. (Note that “primary” in this parameter’s name indicates the basis of mortality for the primary annuitant if the payment form underlying the lump sum is a joint and survivor annuity.) On the other hand, if the death benefit is defined as an annuity, commencing when the member would have been age 55 and paid for the beneficiary’s lifetime, equal to half of the member’s accrued benefit, but it is assumed for valuation purposes that the beneficiary takes payment as a lump sum immediately upon the member’s death, then the appropriate underlying payment form to select for this component is a deferred to 55 life annuity with mortality based on the beneficiary’s age and sex. Again, select a lump sum type for the Benefit Definition’s Payment Form parameter, but uncheck the When used in a death benefit, base primary mortality on the deceased member’s age/sex box, to use mortality rates based on the beneficiary’s age and sex. Note that regardless of whether the annuity value of the underlying payment form is based on member or beneficiary mortality, deferral is to member age 55; thus when annuitant mortality is based on beneficiary age and sex, the annuity value returned will be for the beneficiary age that corresponds to member age 55, with the correspondence determined as indicated in the following paragraph.

The beneficiary is presumed to be the member’s spouse; thus ProVal applies the age difference of the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions to determine the beneficiary’s age; the beneficiary’s sex is presumed to be the opposite of the member’s. If the payment form underlying the lump sum factor component is a joint and survivor annuity type, then the check box defines the primary annuitant’s mortality basis; the contingent annuitant is presumed to be the primary annuitant’s spouse, i.e., of opposite sex with an age difference, again, determined by the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions.

If a joint and survivor or post-decrement death type of payment form has been selected as the underlying annuity payment form for this lump sum factor component, the Apply valuation/projection assumptions for percent married check box will be accessible. A check in this box tells ProVal to apply the marital assumption fractions of the Other Valuation Parameters topic of Valuation Assumptions, and, in a forecast, the marital assumption fractions of the Other Parameters topic of Projection Assumptions.

 

SubFormula

This type of component allows you to reference other Benefit Formula Components by use of an expression composed of Benefit Formula Components and expression operators. The component simply evaluates the expression and returns the answer; it is useful for complex benefit formula expressions that are repeated in several Benefit Definitions, because the need to edit a formula in several places, instead of just one, is avoided.

The SubFormula box contains the expression itself, which may include any number of Benefit Formula Components. Pressing the F1 key when the cursor is in this box will summon a list of useful information, including the component names and available operators. Refer to the components by simply typing their names. SubFormula expressions may contain logical statements, which are evaluated as 1 if true and as 0 if false.

 

Table

This type of component may be specified in one of three ways: 

The component looks up values from the specified Benefit Component Table(s). Tables can include dimensions for age, service and sex. Lookup age generally is decrement age in the pension modes (there are specific alternative options discussed below) and payment age in OPEB mode. Note that in the pension modes, the age and sex for lookup are always the member’s age and sex, although you may be defining a benefit payable to the beneficiary. In OPEB mode, however, the age and sex for lookup is the member’s age and sex for benefits payable to the member (as determined by the Payment forms parameters of the OPEB Benefit Definition) and the spouse’s age and sex for benefits payable to the spouse. In all modes, service lookup is the member’s service at decrement.

Frequent applications of tables in pension plans include early retirement factors and graded vesting schedules. Frequent applications of tables in OPEB plans include medical care claims, aging adjustment factors to apply to medical care claims, life insurance face amounts that vary by age and participant contributions that change at age 65 (when Medicare coverage begins).

The Table service based on parameter (in OPEB mode, the When used in an active benefit, table service is based on parameter) is used to define active member service for look up if the table has a service dimension (in OPEB mode, service at decrement for inactive members is specified under the Inactive Data topic of the Census Specifications). The preset option, “<rounded attained age – rounded hire age>”, is displayed; this option indicates that service will be computed as the difference between rounded attained age (as of each valuation date anniversary) and rounded hire age. This treatment is the same as ProVal’s treatment in versions 2.21 and earlier versions, in which it was not possible to choose a database field to define table service. (See also the discussion of the Date of hire (or hire age) parameter under the Active Data topic of the Census Specifications.) Alternatively, table service may be based on a database Field; select from the list of database fields in the current Project. You may refer to a date field from which to measure service or to a numeric field containing service as of the valuation date. Note that selecting, by name, the date of hire field of the Active Data topic of the Census Specifications might not produce the same result as the preset option. This is a consequence of the fact that if a database field is selected, truncated service based on the field is used. That is, if you select the date of hire field by name, ProVal subtracts the hire date from the decrement date and then truncates. The result may be lookup service of one year more or less than if the preset option were used. For more information about table lookups, see the discussion of table interface. If you need fractional service accruals (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

The Advanced button provides options for controlling the age and, in some situations in the pension modes, the service used for accessing table values. In the pension modes, the Look up table values using projected age & service, except section provides some control over accessing the table values, depending on the type of liability calculations performed. For determinations of entry age normal and projected unit credit liabilities and normal cost, table lookups typically use age and service projected to when the decrement occurs. However, when a service-related table (such as for plans with graded vesting) is used, vested liabilities generally reflect current service as of the valuation date rather than projected service (as of the decrement date). For this reason, the recommended choice is to Freeze service for vested liabilities (at the valuation date) in pension modes other than German; in German mode, the recommended choice is Freeze age & service for pure unit credit liabilities (and thus reflect current age and current service as of the valuation date for pure unit credit liabilities). The No exceptions option, which projects age and service to decrement for all liabilities, including pure unit credit and vested liabilities, and the Freeze age & service for pure unit credit & vested liabilities option (not applicable to German mode), which freezes both age and service at the valuation date for pure unit credit and vested liabilities, are used infrequently.

Available in all modes, the Youngest/Oldest Recognized Ages parameters restrict the age lookup of a table to a smaller range of values. Check the Use the age x table value for all ages up to age x box to tell ProVal to return the age x table value for ages equal to and younger than the age, x, entered as a numeric value or Plan Constant,. That is, check this box to restrict the values returned to only those for ages equal to or greater than the “start age”, x. Similarly, check the Use the age x table value for all ages after age x box to tell ProVal to restrict the values to only those for ages equal to or less than the “stop age”, x.

ProVal’s default is to compute age for table lookups as the rounded attained age at each valuation date anniversary, i.e., the age on the birthday nearest the valuation date. For example, if a plan member was born on 5/15/1960 and the valuation date is 1/1/2013, the member’s age is 52 years, 7 months and about 15 days on the valuation date. For most valuation purposes, such as determining applicable decrement rates, ProVal deems the member to be age 53, which is the exact age on 5/15/2013 (the nearest birthday to 1/1/2013). In the pension modes, the Table values based on parameters provide the option to look up values of the table component using a different definition of age. To keep ProVal’s default for determining age for look up, select Age nearest birthday, and the value returned for lookup at the valuation date will be the tabular value for age 53. To use instead the age on 5/15/2012, the birthday preceding 1/1/2013, select Age last birthday, and the value returned for lookup at the valuation date will be the tabular value for age 52. If Age in years and months (interpolated) is selected, the member’s age at the valuation date, 1/1/2013, is deemed to be age 52 and 7 (completed) months, and the table value “looked up” at 1/1/2013 will be the sum of 5/12ths of the age 52 tabular value and 7/12ths of the age 53 tabular value (i.e., we interpolate the member’s age between 52 and 53, to derive a more exact age at 1/1/2013). Note that if the member’s birthday is on the valuation date, these three options will use the same age for looking up table values. Finally, if Year minus year of birth is selected, the valuation date value will be the tabular value for age “2013 minus 1960”, that is, for age 53.

Specify whether to Look up table values at "decrement" or "commencement" age. If "commencement" is selected, the lookup will be based on the commencement age as determined by the normal form of payment specified in the Benefit Definition that uses this component. Note that for Solvency liabilities in Canadian mode, the age at commencement is always used, so this parameter will have no effect.

If a component’s value depends on the year in which the decrement occurs (or, for inactive members in OPEB mode, by calendar year of payment), check the Apply increase rates to this component box to prompt a question about those increase rates in the Valuation Assumptions and Projection Assumptions sections of the Input menu. Increase rates may be entered as constant or calendar year dependent (varying by calendar year of decrement or, for inactive members in OPEB mode, by calendar year of payment) or by reference to increase rate tables. In German Pension mode, check the Do not apply to post-termination benefits box if no increase rates should be applied between termination and second decrement.

 

Late retirement

Late retirement components adjust an existing component for late retirement. It has the same values as the underlying component for all ages prior to or coincident with the normal retirement age (NRA). The value for each decrement age after the normal retirement age is set to the greater of:

A. The value of the underlying component at this decrement age, and

B. The value of the underlying component at NRA, multiplied with the present value at NRA of an immediate life annuity, and divided by the present value at NRA of a life annuity deferred to the decrement age.

The Benefit formula component parameter defines that underlying component. The Normal retirement age parameter can be defined either as a constant or as a numeric database field. Non-integer ages are rounded to the nearest integer age. The Normal form type defines what type of annuity will be used when calculating the late retirement factors. The only types supported are "Life Annuity" and "Certain & Life Annuity". If you select the latter type, you will be asked to specify the Certain period. In either case, we assume there is no deferral or temporary periods. Note that the calculation of the late retirement factors requires calculating deferred annuities, but those are calculated automatically by the system. 

Please remember to replace the underlying component with the corresponding late retirement component in the benefit formula of all relevant benefit definitions.


 

ump Sum Factor

This type of component, available in the pension modes, allows you to vary the present value, as of the decrement date, of annuity payments in the Benefit formula according to the underlying interest and mortality assumptions, a consequence of the fact that this component type computes present values separately, during execution of the Valuation or Core Projection (of a forecast), for each liability calculation. For example, for a multiemployer funding Valuation in the U.S. qualified mode, if the payment form selected as the Normal form of a Benefit Definition is a lump sum type, representing the present value of an annuity, then the annuity present values used for current liability calculations can be based on the appropriate interest rate(s) and mortality if you select the lump sum factor option for the Component type instead of the table option, which returns the same present value regardless of whether the liability being computed is accrued liability under the actuarial cost method, RPA current liability, maximum deductible contribution basis current liability, etc..

The definition of the lump sum factor component includes only the annuity payment form underlying the component and how to “look up” the annuitant’s age and sex. The underlying mortality rates and interest rate(s) are entered elsewhere, under the Lump Sum & Optional Payment Forms topic of Valuation Assumptions and/or Projection Assumptions.

Select the Annuity payment form upon which lump sum factor will be based from the list of payment forms already defined as an annuity type (other than the modified cash refund annuity) in the current Project, or click the  button to access the Payment Form Library and create new payment forms or modify existing ones. Note that you are selecting a payment form that will be used only for computing the annuity present value that is returned as this component’s value, for use in the Benefit formula that determines the amount of the benefit, which is then paid out according to the Payment forms parameters of the Benefit Definition. Therefore, the lump sum factor component’s payment form will not determine the pattern of the stream of pension payments (for example, whether payments are temporary or continue for life); nor will it determine, in the U.S. qualified and U.S. public pension modes, the assumed pension commencement age for reducing or increasing the U.S. Internal Revenue Code Section 415(b) dollar limit for early or late benefit commencement, respectively. Rather, it is the Benefit Definition’s Payment Form parameter that determines the assumed payment stream and the early or late commencement age if the Benefit Definition’s Apply 415(b) maximum benefit limit box is checked.

Please note that the lump sum factor value is part of the benefit amount determined by the Benefit formula and thus affects the calculation of expected benefit payments.

Click the Advanced button to access the “Lump Sum Factor: Advanced” dialog box, in which you complete the remaining lump sum factor component parameters. These parameters, detailed in the following paragraphs, specify additional information needed to compute the present value of the selected annuity payment form underlying the lump sum value and tell ProVal how to determine the age (age and sex if used in a death Benefit Definition) to return the component value.

If you wish to include the specifications of cost-of-living adjustments (COLAs) entered in the valuation and projection assumptions for calculating the lump sum present value of the specified annuity payment form underlying the lump sum value, then check the Use valuation/projection assumption COLAs box. Alternatively, if your COLA assumption is simply a constant rate, you may uncheck the box and enter the constant assumed COLA rate during payment period and/or, if you have specified an underlying payment form with deferred benefit commencement for this lump sum factor component, the constant assumed COLA rate during deferral period. Enter the COLA rate(s) as a number, not as a percentage. Payment period COLAs start at the assumed annuity benefit commencement date; deferral period COLAs start at decrement and end at the assumed annuity benefit commencement date. Note that COLAs specified by these (lump sum component) COLA parameters are applied, in the computation of valuation liabilities, to determine the component’s value regardless of whether the Benefit Definition whose Benefit formula references the lump sum component has a check in the Apply COLAs from assumptions box.

ProVal will compute values for all ages from 15 to the oldest age of your mortality table (but not beyond age 120). The Youngest/Oldest Recognized Ages parameters restrict the age “lookup” of the lump sum factor value to a smaller range of ages. For example, if your Benefit formula for decrements prior to age 55 uses the lump sum value as of age 55, then you need the lump sum factor component to return the annuity value as of age 55 (not as of the decrement age) for decrements prior to 55. In this case, check the Use age r lump sum factor for all ages up to age r box and tell ProVal to return the r = 55 lump sum factor value for decrement ages younger than 55. That is, this box is checked to restrict the values returned to those for ages equal to or greater than the age specified in the parameter’s text box. Similarly, check the Use age r lump sum factor for all ages after age r box and tell ProVal to return the present value at the specified age for all older decrement ages. Thus, for example, if the lump sum value to be returned for decrement age 72 is the present value at age 70 (not at age 72) of an immediate life annuity, enter age 70 here (i.e., r = 70); ProVal will return the component value at age 70 for all older decrement ages as well. Note that the parameter refers to the member’s age regardless of whether the lump sum factor component is used in a death benefit, for which special considerations apply (see the discussion in a following paragraph).

For computing valuation lump sum factor values, if the interest basis varies by duration from decrement or if the mortality basis is a dynamic table (that is, dynamically generated as the table expected to be in effect at decrement), then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement. This substitution applies for all elements of determining the lump sum value. Thus, for example, if the mortality basis is dynamic, the decrement age is 40 and you entered 55 as the youngest recognized age, ProVal will return a value for the decrement date (when the plan member is age 40) that is the age 55 value from the slice of the dynamic table for the year in which age 55 is attained (not an age 55 value from the slice of the table for the year of decrement, when the member is age 40). Likewise, for computing experience lump sum factor values in a Core Projection, if the interest basis varies by duration from decrement, then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement.

In the Canadian registered mode, check the Use age on valuation date for Solvency liabilities box to look up lump sum factor values using the member’s current age, i.e., age on the valuation date. That is, for purposes of solvency liability calculation, the lump sum factor value will be frozen at the valuation date, after application of the youngest/oldest recognized ages (if any are specified).

If the lump sum factor component is used in a Benefit Definition initiated by the retirement, termination or disability contingencies, member age and sex will be used to select the appropriate mortality rates for determining the present value of the underlying annuity payment form. If, however, the lump sum factor component is used in a Benefit Definition initiated by the death contingency, the present value of the underlying annuity payment form may be computed using either member or beneficiary age and sex to determine the underlying mortality rates. For example, if the death benefit in a plan with a life annuity normal form and normal retirement age of 65 is defined as the present value, paid as a lump sum at death, of the member’s accrued normal retirement benefit (i.e., a benefit commencing at the normal retirement age and paid on the normal form), then you could create a lump sum factor Benefit Formula Component, select a deferred to 65 life annuity as its underlying payment form, select a lump sum type for the Benefit Definition’s Payment Form parameter and check the When used in a death benefit, base primary mortality on the deceased member’s age/sexbox; ProVal will base mortality on the member’s age and sex. (Note that “primary” in this parameter’s name indicates the basis of mortality for the primary annuitant if the payment form underlying the lump sum is a joint and survivor annuity.) On the other hand, if the death benefit is defined as an annuity, commencing when the member would have been age 55 and paid for the beneficiary’s lifetime, equal to half of the member’s accrued benefit, but it is assumed for valuation purposes that the beneficiary takes payment as a lump sum immediately upon the member’s death, then the appropriate underlying payment form to select for this component is a deferred to 55 life annuity with mortality based on the beneficiary’s age and sex. Again, select a lump sum type for the Benefit Definition’s Payment Form parameter, but uncheck the When used in a death benefit, base primary mortality on the deceased member’s age/sex box, to use mortality rates based on the beneficiary’s age and sex. Note that regardless of whether the annuity value of the underlying payment form is based on member or beneficiary mortality, deferral is to member age 55; thus when annuitant mortality is based on beneficiary age and sex, the annuity value returned will be for the beneficiary age that corresponds to member age 55, with the correspondence determined as indicated in the following paragraph.

The beneficiary is presumed to be the member’s spouse; thus ProVal applies the age difference of the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions to determine the beneficiary’s age; the beneficiary’s sex is presumed to be the opposite of the member’s. If the payment form underlying the lump sum factor component is a joint and survivor annuity type, then the check box defines the primary annuitant’s mortality basis; the contingent annuitant is presumed to be the primary annuitant’s spouse, i.e., of opposite sex with an age difference, again, determined by the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions.

If a joint and survivor or post-decrement death type of payment form has been selected as the underlying annuity payment form for this lump sum factor component, the Apply valuation/projection assumptions for percent married check box will be accessible. A check in this box tells ProVal to apply the marital assumption fractions of the Other Valuation Parameters topic of Valuation Assumptions, and, in a forecast, the marital assumption fractions of the Other Parameters topic of Projection Assumptions.

 

Lump Sum Factor

This type of component, available in the pension modes, allows you to vary the present value, as of the decrement date, of annuity payments in the Benefit formula according to the underlying interest and mortality assumptions, a consequence of the fact that this component type computes present values separately, during execution of the Valuation or Core Projection (of a forecast), for each liability calculation. For example, for a multiemployer funding Valuation in the U.S. qualified mode, if the payment form selected as the Normal form of a Benefit Definition is a lump sum type, representing the present value of an annuity, then the annuity present values used for current liability calculations can be based on the appropriate interest rate(s) and mortality if you select the lump sum factor option for the Component type instead of the table option, which returns the same present value regardless of whether the liability being computed is accrued liability under the actuarial cost method, RPA current liability, maximum deductible contribution basis current liability, etc..

The definition of the lump sum factor component includes only the annuity payment form underlying the component and how to “look up” the annuitant’s age and sex. The underlying mortality rates and interest rate(s) are entered elsewhere, under the Lump Sum & Optional Payment Forms topic of Valuation Assumptions and/or Projection Assumptions.

Select the Annuity payment form upon which lump sum factor will be based from the list of payment forms already defined as an annuity type (other than the modified cash refund annuity) in the current Project, or click the  button to access the Payment Form Library and create new payment forms or modify existing ones. Note that you are selecting a payment form that will be used only for computing the annuity present value that is returned as this component’s value, for use in the Benefit formula that determines the amount of the benefit, which is then paid out according to the Payment forms parameters of the Benefit Definition. Therefore, the lump sum factor component’s payment form will not determine the pattern of the stream of pension payments (for example, whether payments are temporary or continue for life); nor will it determine, in the U.S. qualified and U.S. public pension modes, the assumed pension commencement age for reducing or increasing the U.S. Internal Revenue Code Section 415(b) dollar limit for early or late benefit commencement, respectively. Rather, it is the Benefit Definition’s Payment Form parameter that determines the assumed payment stream and the early or late commencement age if the Benefit Definition’s Apply 415(b) maximum benefit limit box is checked.

Please note that the lump sum factor value is part of the benefit amount determined by the Benefit formula and thus affects the calculation of expected benefit payments.

Click the Advanced button to access the “Lump Sum Factor: Advanced” dialog box, in which you complete the remaining lump sum factor component parameters. These parameters, detailed in the following paragraphs, specify additional information needed to compute the present value of the selected annuity payment form underlying the lump sum value and tell ProVal how to determine the age (age and sex if used in a death Benefit Definition) to return the component value.

If you wish to include the specifications of cost-of-living adjustments (COLAs) entered in the valuation and projection assumptions for calculating the lump sum present value of the specified annuity payment form underlying the lump sum value, then check the Use valuation/projection assumption COLAs box. Alternatively, if your COLA assumption is simply a constant rate, you may uncheck the box and enter the constant assumed COLA rate during payment period and/or, if you have specified an underlying payment form with deferred benefit commencement for this lump sum factor component, the constant assumed COLA rate during deferral period. Enter the COLA rate(s) as a number, not as a percentage. Payment period COLAs start at the assumed annuity benefit commencement date; deferral period COLAs start at decrement and end at the assumed annuity benefit commencement date. Note that COLAs specified by these (lump sum component) COLA parameters are applied, in the computation of valuation liabilities, to determine the component’s value regardless of whether the Benefit Definition whose Benefit formula references the lump sum component has a check in the Apply COLAs from assumptions box.

ProVal will compute values for all ages from 15 to the oldest age of your mortality table (but not beyond age 120). The Youngest/Oldest Recognized Ages parameters restrict the age “lookup” of the lump sum factor value to a smaller range of ages. For example, if your Benefit formula for decrements prior to age 55 uses the lump sum value as of age 55, then you need the lump sum factor component to return the annuity value as of age 55 (not as of the decrement age) for decrements prior to 55. In this case, check the Use age r lump sum factor for all ages up to age r box and tell ProVal to return the r = 55 lump sum factor value for decrement ages younger than 55. That is, this box is checked to restrict the values returned to those for ages equal to or greater than the age specified in the parameter’s text box. Similarly, check the Use age r lump sum factor for all ages after age r box and tell ProVal to return the present value at the specified age for all older decrement ages. Thus, for example, if the lump sum value to be returned for decrement age 72 is the present value at age 70 (not at age 72) of an immediate life annuity, enter age 70 here (i.e., r = 70); ProVal will return the component value at age 70 for all older decrement ages as well. Note that the parameter refers to the member’s age regardless of whether the lump sum factor component is used in a death benefit, for which special considerations apply (see the discussion in a following paragraph).

For computing valuation lump sum factor values, if the interest basis varies by duration from decrement or if the mortality basis is a dynamic table (that is, dynamically generated as the table expected to be in effect at decrement), then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement. This substitution applies for all elements of determining the lump sum value. Thus, for example, if the mortality basis is dynamic, the decrement age is 40 and you entered 55 as the youngest recognized age, ProVal will return a value for the decrement date (when the plan member is age 40) that is the age 55 value from the slice of the dynamic table for the year in which age 55 is attained (not an age 55 value from the slice of the table for the year of decrement, when the member is age 40). Likewise, for computing experience lump sum factor values in a Core Projection, if the interest basis varies by duration from decrement, then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement.

In the Canadian registered mode, check the Use age on valuation date for Solvency liabilities box to look up lump sum factor values using the member’s current age, i.e., age on the valuation date. That is, for purposes of solvency liability calculation, the lump sum factor value will be frozen at the valuation date, after application of the youngest/oldest recognized ages (if any are specified).

If the lump sum factor component is used in a Benefit Definition initiated by the retirement, termination or disability contingencies, member age and sex will be used to select the appropriate mortality rates for determining the present value of the underlying annuity payment form. If, however, the lump sum factor component is used in a Benefit Definition initiated by the death contingency, the present value of the underlying annuity payment form may be computed using either member or beneficiary age and sex to determine the underlying mortality rates. For example, if the death benefit in a plan with a life annuity normal form and normal retirement age of 65 is defined as the present value, paid as a lump sum at death, of the member’s accrued normal retirement benefit (i.e., a benefit commencing at the normal retirement age and paid on the normal form), then you could create a lump sum factor Benefit Formula Component, select a deferred to 65 life annuity as its underlying payment form, select a lump sum type for the Benefit Definition’s Payment Form parameter and check the When used in a death benefit, base primary mortality on the deceased member’s age/sexbox; ProVal will base mortality on the member’s age and sex. (Note that “primary” in this parameter’s name indicates the basis of mortality for the primary annuitant if the payment form underlying the lump sum is a joint and survivor annuity.) On the other hand, if the death benefit is defined as an annuity, commencing when the member would have been age 55 and paid for the beneficiary’s lifetime, equal to half of the member’s accrued benefit, but it is assumed for valuation purposes that the beneficiary takes payment as a lump sum immediately upon the member’s death, then the appropriate underlying payment form to select for this component is a deferred to 55 life annuity with mortality based on the beneficiary’s age and sex. Again, select a lump sum type for the Benefit Definition’s Payment Form parameter, but uncheck the When used in a death benefit, base primary mortality on the deceased member’s age/sex box, to use mortality rates based on the beneficiary’s age and sex. Note that regardless of whether the annuity value of the underlying payment form is based on member or beneficiary mortality, deferral is to member age 55; thus when annuitant mortality is based on beneficiary age and sex, the annuity value returned will be for the beneficiary age that corresponds to member age 55, with the correspondence determined as indicated in the following paragraph.

The beneficiary is presumed to be the member’s spouse; thus ProVal applies the age difference of the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions to determine the beneficiary’s age; the beneficiary’s sex is presumed to be the opposite of the member’s. If the payment form underlying the lump sum factor component is a joint and survivor annuity type, then the check box defines the primary annuitant’s mortality basis; the contingent annuitant is presumed to be the primary annuitant’s spouse, i.e., of opposite sex with an age difference, again, determined by the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions.

If a joint and survivor or post-decrement death type of payment form has been selected as the underlying annuity payment form for this lump sum factor component, the Apply valuation/projection assumptions for percent married check box will be accessible. A check in this box tells ProVal to apply the marital assumption fractions of the Other Valuation Parameters topic of Valuation Assumptions, and, in a forecast, the marital assumption fractions of the Other Parameters topic of Projection Assumptions.

 

Lump Sum Factor

This type of component, available in the pension modes, allows you to vary the present value, as of the decrement date, of annuity payments in the Benefit formula according to the underlying interest and mortality assumptions, a consequence of the fact that this component type computes present values separately, during execution of the Valuation or Core Projection (of a forecast), for each liability calculation. For example, for a multiemployer funding Valuation in the U.S. qualified mode, if the payment form selected as the Normal form of a Benefit Definition is a lump sum type, representing the present value of an annuity, then the annuity present values used for current liability calculations can be based on the appropriate interest rate(s) and mortality if you select the lump sum factor option for the Component type instead of the table option, which returns the same present value regardless of whether the liability being computed is accrued liability under the actuarial cost method, RPA current liability, maximum deductible contribution basis current liability, etc..

The definition of the lump sum factor component includes only the annuity payment form underlying the component and how to “look up” the annuitant’s age and sex. The underlying mortality rates and interest rate(s) are entered elsewhere, under the Lump Sum & Optional Payment Forms topic of Valuation Assumptions and/or Projection Assumptions.

Select the Annuity payment form upon which lump sum factor will be based from the list of payment forms already defined as an annuity type (other than the modified cash refund annuity) in the current Project, or click the  button to access the Payment Form Library and create new payment forms or modify existing ones. Note that you are selecting a payment form that will be used only for computing the annuity present value that is returned as this component’s value, for use in the Benefit formula that determines the amount of the benefit, which is then paid out according to the Payment forms parameters of the Benefit Definition. Therefore, the lump sum factor component’s payment form will not determine the pattern of the stream of pension payments (for example, whether payments are temporary or continue for life); nor will it determine, in the U.S. qualified and U.S. public pension modes, the assumed pension commencement age for reducing or increasing the U.S. Internal Revenue Code Section 415(b) dollar limit for early or late benefit commencement, respectively. Rather, it is the Benefit Definition’s Payment Form parameter that determines the assumed payment stream and the early or late commencement age if the Benefit Definition’s Apply 415(b) maximum benefit limit box is checked.

Please note that the lump sum factor value is part of the benefit amount determined by the Benefit formula and thus affects the calculation of expected benefit payments.

Click the Advanced button to access the “Lump Sum Factor: Advanced” dialog box, in which you complete the remaining lump sum factor component parameters. These parameters, detailed in the following paragraphs, specify additional information needed to compute the present value of the selected annuity payment form underlying the lump sum value and tell ProVal how to determine the age (age and sex if used in a death Benefit Definition) to return the component value.

If you wish to include the specifications of cost-of-living adjustments (COLAs) entered in the valuation and projection assumptions for calculating the lump sum present value of the specified annuity payment form underlying the lump sum value, then check the Use valuation/projection assumption COLAs box. Alternatively, if your COLA assumption is simply a constant rate, you may uncheck the box and enter the constant assumed COLA rate during payment period and/or, if you have specified an underlying payment form with deferred benefit commencement for this lump sum factor component, the constant assumed COLA rate during deferral period. Enter the COLA rate(s) as a number, not as a percentage. Payment period COLAs start at the assumed annuity benefit commencement date; deferral period COLAs start at decrement and end at the assumed annuity benefit commencement date. Note that COLAs specified by these (lump sum component) COLA parameters are applied, in the computation of valuation liabilities, to determine the component’s value regardless of whether the Benefit Definition whose Benefit formula references the lump sum component has a check in the Apply COLAs from assumptions box.

ProVal will compute values for all ages from 15 to the oldest age of your mortality table (but not beyond age 120). The Youngest/Oldest Recognized Ages parameters restrict the age “lookup” of the lump sum factor value to a smaller range of ages. For example, if your Benefit formula for decrements prior to age 55 uses the lump sum value as of age 55, then you need the lump sum factor component to return the annuity value as of age 55 (not as of the decrement age) for decrements prior to 55. In this case, check the Use age r lump sum factor for all ages up to age r box and tell ProVal to return the r = 55 lump sum factor value for decrement ages younger than 55. That is, this box is checked to restrict the values returned to those for ages equal to or greater than the age specified in the parameter’s text box. Similarly, check the Use age r lump sum factor for all ages after age r box and tell ProVal to return the present value at the specified age for all older decrement ages. Thus, for example, if the lump sum value to be returned for decrement age 72 is the present value at age 70 (not at age 72) of an immediate life annuity, enter age 70 here (i.e., r = 70); ProVal will return the component value at age 70 for all older decrement ages as well. Note that the parameter refers to the member’s age regardless of whether the lump sum factor component is used in a death benefit, for which special considerations apply (see the discussion in a following paragraph).

For computing valuation lump sum factor values, if the interest basis varies by duration from decrement or if the mortality basis is a dynamic table (that is, dynamically generated as the table expected to be in effect at decrement), then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement. This substitution applies for all elements of determining the lump sum value. Thus, for example, if the mortality basis is dynamic, the decrement age is 40 and you entered 55 as the youngest recognized age, ProVal will return a value for the decrement date (when the plan member is age 40) that is the age 55 value from the slice of the dynamic table for the year in which age 55 is attained (not an age 55 value from the slice of the table for the year of decrement, when the member is age 40). Likewise, for computing experience lump sum factor values in a Core Projection, if the interest basis varies by duration from decrement, then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement.

In the Canadian registered mode, check the Use age on valuation date for Solvency liabilities box to look up lump sum factor values using the member’s current age, i.e., age on the valuation date. That is, for purposes of solvency liability calculation, the lump sum factor value will be frozen at the valuation date, after application of the youngest/oldest recognized ages (if any are specified).

If the lump sum factor component is used in a Benefit Definition initiated by the retirement, termination or disability contingencies, member age and sex will be used to select the appropriate mortality rates for determining the present value of the underlying annuity payment form. If, however, the lump sum factor component is used in a Benefit Definition initiated by the death contingency, the present value of the underlying annuity payment form may be computed using either member or beneficiary age and sex to determine the underlying mortality rates. For example, if the death benefit in a plan with a life annuity normal form and normal retirement age of 65 is defined as the present value, paid as a lump sum at death, of the member’s accrued normal retirement benefit (i.e., a benefit commencing at the normal retirement age and paid on the normal form), then you could create a lump sum factor Benefit Formula Component, select a deferred to 65 life annuity as its underlying payment form, select a lump sum type for the Benefit Definition’s Payment Form parameter and check the When used in a death benefit, base primary mortality on the deceased member’s age/sexbox; ProVal will base mortality on the member’s age and sex. (Note that “primary” in this parameter’s name indicates the basis of mortality for the primary annuitant if the payment form underlying the lump sum is a joint and survivor annuity.) On the other hand, if the death benefit is defined as an annuity, commencing when the member would have been age 55 and paid for the beneficiary’s lifetime, equal to half of the member’s accrued benefit, but it is assumed for valuation purposes that the beneficiary takes payment as a lump sum immediately upon the member’s death, then the appropriate underlying payment form to select for this component is a deferred to 55 life annuity with mortality based on the beneficiary’s age and sex. Again, select a lump sum type for the Benefit Definition’s Payment Form parameter, but uncheck the When used in a death benefit, base primary mortality on the deceased member’s age/sex box, to use mortality rates based on the beneficiary’s age and sex. Note that regardless of whether the annuity value of the underlying payment form is based on member or beneficiary mortality, deferral is to member age 55; thus when annuitant mortality is based on beneficiary age and sex, the annuity value returned will be for the beneficiary age that corresponds to member age 55, with the correspondence determined as indicated in the following paragraph.

The beneficiary is presumed to be the member’s spouse; thus ProVal applies the age difference of the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions to determine the beneficiary’s age; the beneficiary’s sex is presumed to be the opposite of the member’s. If the payment form underlying the lump sum factor component is a joint and survivor annuity type, then the check box defines the primary annuitant’s mortality basis; the contingent annuitant is presumed to be the primary annuitant’s spouse, i.e., of opposite sex with an age difference, again, determined by the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions.

If a joint and survivor or post-decrement death type of payment form has been selected as the underlying annuity payment form for this lump sum factor component, the Apply valuation/projection assumptions for percent married check box will be accessible. A check in this box tells ProVal to apply the marital assumption fractions of the Other Valuation Parameters topic of Valuation Assumptions, and, in a forecast, the marital assumption fractions of the Other Parameters topic of Projection Assumptions.

 

Lump Sum Factor

This type of component, available in the pension modes, allows you to vary the present value, as of the decrement date, of annuity payments in the Benefit formula according to the underlying interest and mortality assumptions, a consequence of the fact that this component type computes present values separately, during execution of the Valuation or Core Projection (of a forecast), for each liability calculation. For example, for a multiemployer funding Valuation in the U.S. qualified mode, if the payment form selected as the Normal form of a Benefit Definition is a lump sum type, representing the present value of an annuity, then the annuity present values used for current liability calculations can be based on the appropriate interest rate(s) and mortality if you select the lump sum factor option for the Component type instead of the table option, which returns the same present value regardless of whether the liability being computed is accrued liability under the actuarial cost method, RPA current liability, maximum deductible contribution basis current liability, etc..

The definition of the lump sum factor component includes only the annuity payment form underlying the component and how to “look up” the annuitant’s age and sex. The underlying mortality rates and interest rate(s) are entered elsewhere, under the Lump Sum & Optional Payment Forms topic of Valuation Assumptions and/or Projection Assumptions.

Select the Annuity payment form upon which lump sum factor will be based from the list of payment forms already defined as an annuity type (other than the modified cash refund annuity) in the current Project, or click the  button to access the Payment Form Library and create new payment forms or modify existing ones. Note that you are selecting a payment form that will be used only for computing the annuity present value that is returned as this component’s value, for use in the Benefit formula that determines the amount of the benefit, which is then paid out according to the Payment forms parameters of the Benefit Definition. Therefore, the lump sum factor component’s payment form will not determine the pattern of the stream of pension payments (for example, whether payments are temporary or continue for life); nor will it determine, in the U.S. qualified and U.S. public pension modes, the assumed pension commencement age for reducing or increasing the U.S. Internal Revenue Code Section 415(b) dollar limit for early or late benefit commencement, respectively. Rather, it is the Benefit Definition’s Payment Form parameter that determines the assumed payment stream and the early or late commencement age if the Benefit Definition’s Apply 415(b) maximum benefit limit box is checked.

Please note that the lump sum factor value is part of the benefit amount determined by the Benefit formula and thus affects the calculation of expected benefit payments.

Click the Advanced button to access the “Lump Sum Factor: Advanced” dialog box, in which you complete the remaining lump sum factor component parameters. These parameters, detailed in the following paragraphs, specify additional information needed to compute the present value of the selected annuity payment form underlying the lump sum value and tell ProVal how to determine the age (age and sex if used in a death Benefit Definition) to return the component value.

If you wish to include the specifications of cost-of-living adjustments (COLAs) entered in the valuation and projection assumptions for calculating the lump sum present value of the specified annuity payment form underlying the lump sum value, then check the Use valuation/projection assumption COLAs box. Alternatively, if your COLA assumption is simply a constant rate, you may uncheck the box and enter the constant assumed COLA rate during payment period and/or, if you have specified an underlying payment form with deferred benefit commencement for this lump sum factor component, the constant assumed COLA rate during deferral period. Enter the COLA rate(s) as a number, not as a percentage. Payment period COLAs start at the assumed annuity benefit commencement date; deferral period COLAs start at decrement and end at the assumed annuity benefit commencement date. Note that COLAs specified by these (lump sum component) COLA parameters are applied, in the computation of valuation liabilities, to determine the component’s value regardless of whether the Benefit Definition whose Benefit formula references the lump sum component has a check in the Apply COLAs from assumptions box.

ProVal will compute values for all ages from 15 to the oldest age of your mortality table (but not beyond age 120). The Youngest/Oldest Recognized Ages parameters restrict the age “lookup” of the lump sum factor value to a smaller range of ages. For example, if your Benefit formula for decrements prior to age 55 uses the lump sum value as of age 55, then you need the lump sum factor component to return the annuity value as of age 55 (not as of the decrement age) for decrements prior to 55. In this case, check the Use age r lump sum factor for all ages up to age r box and tell ProVal to return the r = 55 lump sum factor value for decrement ages younger than 55. That is, this box is checked to restrict the values returned to those for ages equal to or greater than the age specified in the parameter’s text box. Similarly, check the Use age r lump sum factor for all ages after age r box and tell ProVal to return the present value at the specified age for all older decrement ages. Thus, for example, if the lump sum value to be returned for decrement age 72 is the present value at age 70 (not at age 72) of an immediate life annuity, enter age 70 here (i.e., r = 70); ProVal will return the component value at age 70 for all older decrement ages as well. Note that the parameter refers to the member’s age regardless of whether the lump sum factor component is used in a death benefit, for which special considerations apply (see the discussion in a following paragraph).

For computing valuation lump sum factor values, if the interest basis varies by duration from decrement or if the mortality basis is a dynamic table (that is, dynamically generated as the table expected to be in effect at decrement), then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement. This substitution applies for all elements of determining the lump sum value. Thus, for example, if the mortality basis is dynamic, the decrement age is 40 and you entered 55 as the youngest recognized age, ProVal will return a value for the decrement date (when the plan member is age 40) that is the age 55 value from the slice of the dynamic table for the year in which age 55 is attained (not an age 55 value from the slice of the table for the year of decrement, when the member is age 40). Likewise, for computing experience lump sum factor values in a Core Projection, if the interest basis varies by duration from decrement, then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement.

In the Canadian registered mode, check the Use age on valuation date for Solvency liabilities box to look up lump sum factor values using the member’s current age, i.e., age on the valuation date. That is, for purposes of solvency liability calculation, the lump sum factor value will be frozen at the valuation date, after application of the youngest/oldest recognized ages (if any are specified).

If the lump sum factor component is used in a Benefit Definition initiated by the retirement, termination or disability contingencies, member age and sex will be used to select the appropriate mortality rates for determining the present value of the underlying annuity payment form. If, however, the lump sum factor component is used in a Benefit Definition initiated by the death contingency, the present value of the underlying annuity payment form may be computed using either member or beneficiary age and sex to determine the underlying mortality rates. For example, if the death benefit in a plan with a life annuity normal form and normal retirement age of 65 is defined as the present value, paid as a lump sum at death, of the member’s accrued normal retirement benefit (i.e., a benefit commencing at the normal retirement age and paid on the normal form), then you could create a lump sum factor Benefit Formula Component, select a deferred to 65 life annuity as its underlying payment form, select a lump sum type for the Benefit Definition’s Payment Form parameter and check the When used in a death benefit, base primary mortality on the deceased member’s age/sexbox; ProVal will base mortality on the member’s age and sex. (Note that “primary” in this parameter’s name indicates the basis of mortality for the primary annuitant if the payment form underlying the lump sum is a joint and survivor annuity.) On the other hand, if the death benefit is defined as an annuity, commencing when the member would have been age 55 and paid for the beneficiary’s lifetime, equal to half of the member’s accrued benefit, but it is assumed for valuation purposes that the beneficiary takes payment as a lump sum immediately upon the member’s death, then the appropriate underlying payment form to select for this component is a deferred to 55 life annuity with mortality based on the beneficiary’s age and sex. Again, select a lump sum type for the Benefit Definition’s Payment Form parameter, but uncheck the When used in a death benefit, base primary mortality on the deceased member’s age/sex box, to use mortality rates based on the beneficiary’s age and sex. Note that regardless of whether the annuity value of the underlying payment form is based on member or beneficiary mortality, deferral is to member age 55; thus when annuitant mortality is based on beneficiary age and sex, the annuity value returned will be for the beneficiary age that corresponds to member age 55, with the correspondence determined as indicated in the following paragraph.

The beneficiary is presumed to be the member’s spouse; thus ProVal applies the age difference of the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions to determine the beneficiary’s age; the beneficiary’s sex is presumed to be the opposite of the member’s. If the payment form underlying the lump sum factor component is a joint and survivor annuity type, then the check box defines the primary annuitant’s mortality basis; the contingent annuitant is presumed to be the primary annuitant’s spouse, i.e., of opposite sex with an age difference, again, determined by the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions.

If a joint and survivor or post-decrement death type of payment form has been selected as the underlying annuity payment form for this lump sum factor component, the Apply valuation/projection assumptions for percent married check box will be accessible. A check in this box tells ProVal to apply the marital assumption fractions of the Other Valuation Parameters topic of Valuation Assumptions, and, in a forecast, the marital assumption fractions of the Other Parameters topic of Projection Assumptions.

 

Lump Sum Factor

This type of component, available in the pension modes, allows you to vary the present value, as of the decrement date, of annuity payments in the Benefit formula according to the underlying interest and mortality assumptions, a consequence of the fact that this component type computes present values separately, during execution of the Valuation or Core Projection (of a forecast), for each liability calculation. For example, for a multiemployer funding Valuation in the U.S. qualified mode, if the payment form selected as the Normal form of a Benefit Definition is a lump sum type, representing the present value of an annuity, then the annuity present values used for current liability calculations can be based on the appropriate interest rate(s) and mortality if you select the lump sum factor option for the Component type instead of the table option, which returns the same present value regardless of whether the liability being computed is accrued liability under the actuarial cost method, RPA current liability, maximum deductible contribution basis current liability, etc..

The definition of the lump sum factor component includes only the annuity payment form underlying the component and how to “look up” the annuitant’s age and sex. The underlying mortality rates and interest rate(s) are entered elsewhere, under the Lump Sum & Optional Payment Forms topic of Valuation Assumptions and/or Projection Assumptions.

Select the Annuity payment form upon which lump sum factor will be based from the list of payment forms already defined as an annuity type (other than the modified cash refund annuity) in the current Project, or click the  button to access the Payment Form Library and create new payment forms or modify existing ones. Note that you are selecting a payment form that will be used only for computing the annuity present value that is returned as this component’s value, for use in the Benefit formula that determines the amount of the benefit, which is then paid out according to the Payment forms parameters of the Benefit Definition. Therefore, the lump sum factor component’s payment form will not determine the pattern of the stream of pension payments (for example, whether payments are temporary or continue for life); nor will it determine, in the U.S. qualified and U.S. public pension modes, the assumed pension commencement age for reducing or increasing the U.S. Internal Revenue Code Section 415(b) dollar limit for early or late benefit commencement, respectively. Rather, it is the Benefit Definition’s Payment Form parameter that determines the assumed payment stream and the early or late commencement age if the Benefit Definition’s Apply 415(b) maximum benefit limit box is checked.

Please note that the lump sum factor value is part of the benefit amount determined by the Benefit formula and thus affects the calculation of expected benefit payments.

Click the Advanced button to access the “Lump Sum Factor: Advanced” dialog box, in which you complete the remaining lump sum factor component parameters. These parameters, detailed in the following paragraphs, specify additional information needed to compute the present value of the selected annuity payment form underlying the lump sum value and tell ProVal how to determine the age (age and sex if used in a death Benefit Definition) to return the component value.

If you wish to include the specifications of cost-of-living adjustments (COLAs) entered in the valuation and projection assumptions for calculating the lump sum present value of the specified annuity payment form underlying the lump sum value, then check the Use valuation/projection assumption COLAs box. Alternatively, if your COLA assumption is simply a constant rate, you may uncheck the box and enter the constant assumed COLA rate during payment period and/or, if you have specified an underlying payment form with deferred benefit commencement for this lump sum factor component, the constant assumed COLA rate during deferral period. Enter the COLA rate(s) as a number, not as a percentage. Payment period COLAs start at the assumed annuity benefit commencement date; deferral period COLAs start at decrement and end at the assumed annuity benefit commencement date. Note that COLAs specified by these (lump sum component) COLA parameters are applied, in the computation of valuation liabilities, to determine the component’s value regardless of whether the Benefit Definition whose Benefit formula references the lump sum component has a check in the Apply COLAs from assumptions box.

ProVal will compute values for all ages from 15 to the oldest age of your mortality table (but not beyond age 120). The Youngest/Oldest Recognized Ages parameters restrict the age “lookup” of the lump sum factor value to a smaller range of ages. For example, if your Benefit formula for decrements prior to age 55 uses the lump sum value as of age 55, then you need the lump sum factor component to return the annuity value as of age 55 (not as of the decrement age) for decrements prior to 55. In this case, check the Use age r lump sum factor for all ages up to age r box and tell ProVal to return the r = 55 lump sum factor value for decrement ages younger than 55. That is, this box is checked to restrict the values returned to those for ages equal to or greater than the age specified in the parameter’s text box. Similarly, check the Use age r lump sum factor for all ages after age r box and tell ProVal to return the present value at the specified age for all older decrement ages. Thus, for example, if the lump sum value to be returned for decrement age 72 is the present value at age 70 (not at age 72) of an immediate life annuity, enter age 70 here (i.e., r = 70); ProVal will return the component value at age 70 for all older decrement ages as well. Note that the parameter refers to the member’s age regardless of whether the lump sum factor component is used in a death benefit, for which special considerations apply (see the discussion in a following paragraph).

For computing valuation lump sum factor values, if the interest basis varies by duration from decrement or if the mortality basis is a dynamic table (that is, dynamically generated as the table expected to be in effect at decrement), then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement. This substitution applies for all elements of determining the lump sum value. Thus, for example, if the mortality basis is dynamic, the decrement age is 40 and you entered 55 as the youngest recognized age, ProVal will return a value for the decrement date (when the plan member is age 40) that is the age 55 value from the slice of the dynamic table for the year in which age 55 is attained (not an age 55 value from the slice of the table for the year of decrement, when the member is age 40). Likewise, for computing experience lump sum factor values in a Core Projection, if the interest basis varies by duration from decrement, then the lump sum value ProVal returns as the decrement age value will be calculated as if the youngest/oldest age specified is the age at decrement.

In the Canadian registered mode, check the Use age on valuation date for Solvency liabilities box to look up lump sum factor values using the member’s current age, i.e., age on the valuation date. That is, for purposes of solvency liability calculation, the lump sum factor value will be frozen at the valuation date, after application of the youngest/oldest recognized ages (if any are specified).

If the lump sum factor component is used in a Benefit Definition initiated by the retirement, termination or disability contingencies, member age and sex will be used to select the appropriate mortality rates for determining the present value of the underlying annuity payment form. If, however, the lump sum factor component is used in a Benefit Definition initiated by the death contingency, the present value of the underlying annuity payment form may be computed using either member or beneficiary age and sex to determine the underlying mortality rates. For example, if the death benefit in a plan with a life annuity normal form and normal retirement age of 65 is defined as the present value, paid as a lump sum at death, of the member’s accrued normal retirement benefit (i.e., a benefit commencing at the normal retirement age and paid on the normal form), then you could create a lump sum factor Benefit Formula Component, select a deferred to 65 life annuity as its underlying payment form, select a lump sum type for the Benefit Definition’s Payment Form parameter and check the When used in a death benefit, base primary mortality on the deceased member’s age/sexbox; ProVal will base mortality on the member’s age and sex. (Note that “primary” in this parameter’s name indicates the basis of mortality for the primary annuitant if the payment form underlying the lump sum is a joint and survivor annuity.) On the other hand, if the death benefit is defined as an annuity, commencing when the member would have been age 55 and paid for the beneficiary’s lifetime, equal to half of the member’s accrued benefit, but it is assumed for valuation purposes that the beneficiary takes payment as a lump sum immediately upon the member’s death, then the appropriate underlying payment form to select for this component is a deferred to 55 life annuity with mortality based on the beneficiary’s age and sex. Again, select a lump sum type for the Benefit Definition’s Payment Form parameter, but uncheck the When used in a death benefit, base primary mortality on the deceased member’s age/sex box, to use mortality rates based on the beneficiary’s age and sex. Note that regardless of whether the annuity value of the underlying payment form is based on member or beneficiary mortality, deferral is to member age 55; thus when annuitant mortality is based on beneficiary age and sex, the annuity value returned will be for the beneficiary age that corresponds to member age 55, with the correspondence determined as indicated in the following paragraph.

The beneficiary is presumed to be the member’s spouse; thus ProVal applies the age difference of the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions to determine the beneficiary’s age; the beneficiary’s sex is presumed to be the opposite of the member’s. If the payment form underlying the lump sum factor component is a joint and survivor annuity type, then the check box defines the primary annuitant’s mortality basis; the contingent annuitant is presumed to be the primary annuitant’s spouse, i.e., of opposite sex with an age difference, again, determined by the Number of years husbands are older than wives parameter of the Other Valuation Parameters topic of Valuation Assumptions.

If a joint and survivor or post-decrement death type of payment form has been selected as the underlying annuity payment form for this lump sum factor component, the Apply valuation/projection assumptions for percent married check box will be accessible. A check in this box tells ProVal to apply the marital assumption fractions of the Other Valuation Parameters topic of Valuation Assumptions, and, in a forecast, the marital assumption fractions of the Other Parameters topic of Projection Assumptions.