pension modes​

The purpose of the Post-decrement Death Benefit payment form is to value an annuity payable to a beneficiary (presumed to be the surviving spouse) when a plan member dies after leaving active service.

In the U.S. qualified mode, a typical use of this payment form is to code the death benefit coverage required by the Retirement Equity Act of 1984 (REA). Generally, a U.S. qualified plan provides a spouse’s annuity equal to the benefit that would have been paid to the surviving spouse if the member had lived to the earliest possible retirement age, elected the automatic form of payment for married members (presumed by ProVal to be a joint and survivor annuity with no temporary or certain period) and died immediately thereafter.

In the universal mode, this payment form is useful for valuing a Netherlands plan life annuity to a surviving spouse regardless of whether death occurs before or after the plan member receives any benefit payment from the plan.

 

Inactive Members

For current inactive members, value a life annuity payable to the spouse upon member death by adding an Inactive Benefit Definition under the Inactive Data topic of the Census Specifications command. This approach applies only to ProVal inactive statuses other than the “Vested valued through active” status; for the latter, the death benefit payment form type should be a life annuity initiated by the contingency of death, not a post-decrement death benefit.

Enter the same values for the Annual benefit amount and Payment form field parameters of the death benefit’s Inactive Benefit Definition as entered for the Inactive Benefit Definition that provides the annuity the member is currently receiving or the deferred annuity the member will receive (if he/she lives to commencement date of pension payments). If all inactive records with a deferred payment form receive this death benefit coverage and no other inactive records receive this coverage, then code the Payment Form Type as “Post-decrement Death Benefit” for deferred payment form code values of the Payment form field and “<not applicable>” for all other payment form code values. (For example, if a value of 2 in the Payment form field indicates a terminated vested member with a deferred pension benefit and a value of 3 indicates a retired member with a pension benefit that has already commenced payment as of the valuation date, then specify the “Post-decrement Death Benefit” type for code value = 2 and “<not applicable>” for code value = 3.)

Selecting a listed payment form under the Payment form field parameter (or clicking the Parameters button of the Single payment form for all records option, if that option had been selected instead) accesses the Inactive Payment Form dialog box, in which you select the Post-decrement Death Benefit as the payment form Type (and complete the remaining parameters of the dialog box).

ProVal determines the annual benefit amount payable to the spouse as the product of the (member’s) Annual benefit amount specified for this Inactive Benefit and factors specified within the Post-decrement Death Benefit payment form: 1) the early retirement reduction factor, 2) the adjustment factor for conversion from the (member’s) reduced single life annuity to a joint and survivor annuity (although the post-decrement death benefit payment form provides only the remaining life annuity payable to the spouse after the member dies, not any payments during a joint lifetime) and 3) the fraction of the “joint lifetime” benefit amount continued to the beneficiary.

The Post-decrement Death Benefit payment form parameters are discussed in a separate section of this article (below).

 

Active Members

For current active members (i.e., the member’s status as of the valuation date is mapped to the ProVal “Active” status), value a life annuity payable to the spouse upon member death (occurring after the member has terminated employment, disabled or retired) by adding a Benefit Definition, with the following characteristics, to your Plan Definition:

• Same Contingency initiating benefits (anticipated to be other than “Death”), Eligibility requirements and Benefit formula as the Benefit Definition that provides the annuity the member is currently receiving or the deferred annuity the member will receive (if he/she lives to commencement date of pension payments);

• A “Post-decrement Death Benefit” Normal form. The parameters of this payment form type are identical to the parameters of the “Post-decrement Death Benefit” payment form for Inactive Benefit Definitions, except for the option to determine a beneficiary at the decrement date, which is analogous to the valuation date used for inactive members. (Note that ProVal does not support a Post-decrement Death Benefit Optional form of payment. If you define a post-decrement death benefit as an optional payment form, the Valuation or Core Projection will abort.);

• If you wish to associate Cost-of-Living Adjustments (COLAs) with a Post-decrement Death Benefit, please note that the switch from in-deferment COLA to in-payment COLA will happen at the age indicated by the Spouse's benefit commences at parameter, regardless of when the member dies. For example, if the spouse benefit commences at member age 55, the in-payment COLA will start at member age 55 even if the member dies at 57. Similarly, if the spouse benefit commences immediately upon member death, the in-payment COLA starts upon decrement. If this is an issue, please see Example 16 in the COLA Expression Operators article for a more accurate way to set this up using the #MEMDTHAGE operator. Using the #MEMDTHAGE operator may make your run several times slower, so you may want to consider the materiality of this issue prior to using this option.

ProVal determines the annual benefit amount payable to the spouse as the product of the member’s annual benefit amount calculated according to the Benefit formula of this Benefit Definition and factors specified within the payment form: 1) the early retirement reduction factor, 2) the adjustment factor for conversion from the (member’s) reduced single life annuity to a joint and survivor annuity (although the post-decrement death benefit payment form provides only the remaining life annuity payable to the spouse after the member dies, not any payments during a joint lifetime) and 3) the fraction of the “joint lifetime” benefit amount continued to the beneficiary.

The Post-decrement Death Benefit payment form parameters are discussed in the next section of this article.

 

Post-decrement Death Benefit payment form parameters

The Continuation Fraction indicates what portion of the “joint lifetime” annuity payment amount, i.e., the amount after conversion from the member’s single life annuity to a joint life (joint and survivor) annuity, the spouse will be paid after the member dies. For example, if the spouse will receive payments that are half what the member would have received under the joint and survivor annuity, enter 0.5 as the parameter value.

The table of Early Retirement Reduction Factors is used to reduce the payment amount, from the Annual benefit amount (inactive members) or amount calculated by the Benefit formula expression (active members), to reflect early commencement. The table values should be based on the later of 1) member age at decrement (for active members) or member age on the valuation date (for inactive members) and 2) the earliest age at which the member is assumed to start receipt of the pension benefit. Select from the list of Benefit Component Tables in the current Project or click the button to access the Benefit Component Table library, in which you can create new tables or modify existing ones.

The table of Joint & Survivor Conversion Factors is used to adjust the payment amount for conversion from the member’s single life annuity (presumed to have no temporary or certain period), after reduction for early commencement, to the “joint lifetime” amount under a joint life (joint and survivor) annuity form (also presumed to have no temporary or certain period). The table values should be based on the later of 1) member age at decrement (for active members) or member age on the valuation date (for inactive members) and 2) the earliest age at which the member is assumed to start receipt of the pension benefit. Select from the list of Benefit Component Tables in the current Project or click the button to access the Benefit Component Table library, in which you can create new tables or modify existing ones.

The Spouse’s benefit commences at parameter defines when the survivor annuity payments start:

• Select the immediately on member death option if the spouse’s annuity always commences immediately when the member dies (i.e., there is no deferral of payments).

• Select the member age option if the survivor annuity payments are deferred until the later of the member’s age when death actually occurs and attainment by the member of the specified age (had he / she not died). Enter the deferral age in the text field (e.g., 55, to defer the spouse’s payments to when the member would have attained age 55 if the member had not died before reaching age 55). Note that if the member dies after the specified age, the spouse annuity starts immediately upon death.

• Select the spouse age option if the survivor annuity payments are deferred until the later of occurrence of the member’s death and spouse attainment of a specified age. Enter the deferral age in the text field (e.g., 50, to defer the spouse’s payments to attainment of age 50 if the member dies before the spouse reaches age 50). Note that if the member dies after the spouse reaches the specified age, the spouse annuity starts immediately upon death.

Note that when the spouse benefit starts "immediately" upon the member's death (under the first option above, or under the other options if death occurs once the deferral period has expired), the timing of the first annuity payment to the spouse is affected by the setting of the parameter for when to determine there is a beneficiary (discussed below).  If the beneficiary is determined at the valuation date (inactive members) or the decrement date (active members), the first payment to the spouse is at the end of the year of death.  If the beneficiary is determined at member death or the earlier of member death and the assumed member retirement age, the first payment to the spouse is not deferred to the end of the year of death.  Thus, for annuities paid more frequently than annually, there will be payments to the spouse during the year of death.     

The Coverage commences parameter defines the beginning of the period in which the member must die (period of death benefit coverage, in life insurance parlance) for the spouse to receive a survivor benefit, whether payments begin immediately upon death or are deferred. Two options are available:

• Coverage commencing immediately

• Coverage commencing at assumed member retirement age. Only deaths on or after the assumed member retirement age will be eligible for a benefit.

The Coverage ceases parameter defines the end of the period in which the member must die (period of death benefit coverage, in life insurance parlance) for the spouse to receive a survivor benefit, whether payments begin immediately upon death or are deferred. 

• If coverage continues until the death of the spouse (even when the pension is in receipt), select never. One application of this option is to value the “widow benefit” in the Netherlands without having to split the benefit into a post-decrement death benefit (for member death in deferment) and a joint and survivor benefit (for member death after benefit commencement).

• If coverage is provided only up to a fixed member age, select the at member age option. Enter the member coverage cessation age in the text field. There will be no benefit if death occurs after this age.

• If coverage is provided only during the period of deferral of the member's pension, select at assumed member retirement age. There will be no benefit if death occurs after this age.

For inactive members, the existence of a living beneficiary, as well as the age and sex of that beneficiary, is determined by the settings of the Beneficiary determined parameter, as follows:

• If by data as of valuation date (assumptions used if missing) is selected, then to determine the beneficiary’s age, beneficiary’s sex and percentage of the population that has this coverage, ProVal looks for values first in the database fields specified for beneficiary age and sex. If these fields do not contain missing values, ProVal assumes coverage applies and uses the field values to determine beneficiary age and sex. As noted at the beginning of this article, the beneficiary is assumed to be the spouse. Therefore ProVal, appropriately, applies the spouse age setback and marital assumptions (such as percent married) of the Other Valuation Parameters topic of the Valuation Assumptions command – and will do so if (and only if) these fields contain missing values. Spouse mortality is applied beginning at the initial valuation date.

• If at member death is selected, then to determine the beneficiary’s age, beneficiary’s sex and percentage of the population that has this coverage, at each possible date of member death, ProVal applies the spouse age setback and marital assumptions (such as percent married) of the Other Valuation Parameters topic of the Valuation Assumptions command. In modes other than German mode, the spouse is then assumed to survive to the end of the year of the member’s death; thus spouse mortality is applied starting at the end of the year of death. In German mode, spouse mortality is always applied starting at the middle of the year of death and the Beneficiary determined parameter does not appear on the dialog box.

• If at earlier of member death or assumed member retirement age is selected (this option is not available in German mode), then to determine the beneficiary’s age, beneficiary’s sex and percentage of the population that has this coverage, at each possible date of member death or at the specified Assumed member retirement age  if earlier, ProVal applies the spouse age setback and marital assumptions (such as percent married) of the Other Valuation Parameters topic of the Valuation Assumptions command. Note that the Assumed member retirement age is the latest member age at which existence of a beneficiary will be determined (thus marital status will not be evaluated at any later member age). The spouse is then assumed to survive to the end of the year of the member’s death, or to the Assumed member retirement age, if earlier. Thus spouse mortality is applied starting at the end of the year of death but no later than the spouse’s age when the member would have attained the Assumed member retirement age.

For active members, the beneficiary’s age and the percentage of the population that has this coverage are determined by applying the spouse age setback and marital assumptions of the Other Valuation Parameters topic of the Valuation Assumptions command and by the settings of the Beneficiary determined at parameter, as follows.

• If decrement is selected, these assumptions will be applied when the member decrements from active status; thus beneficiary mortality will apply starting at that time.

• If member death is selected, these assumptions will be applied at each possible member age at death (occurring after decrement). In modes other than German mode, the surviving spouse is assumed to survive to the end of the year of the member’s death; thus spouse mortality is applied starting at the end of the year of death. In German mode, spouse mortality is always applied starting at the middle of the year of death and the Beneficiary determined at parameter does not appear on the dialog box.

• If earlier of member death or assumed member retirement age is selected (this option is not available in German mode), the assumptions will be applied at each possible date of member death (occurring after decrement) or at the specified Assumed member retirement age, if earlier. Note that the Assumed member retirement age is the latest member age at which existence of a beneficiary will be determined (thus marital status will not be evaluated at any later member age). The spouse is then assumed to survive to the end of the year of the member’s death, or to the Assumed member retirement age, if earlier. Thus spouse mortality is applied starting at the end of the year of death but not later than the year that the member would have attained the Assumed member retirement age.

Under all these options for active and inactive members, spouse sex is assumed to be the opposite of the member’s sex and this benefit has a zero liability for the unmarried portion of the population.  The setting of this parameter affects the timing of the first payment to the spouse:  see the discussion above of the Spouse’s benefit commences at parameter.

The Assumed member retirement age parameter is used to determine the age at which ProVal switches from pre-commencement to post-commencement member mortality. (Spouse mortality switches at the earlier of spouse commencement and assumed member retirement age.) This parameter may also be referenced by the Coverage and Beneficiary determined parameters (discussed above). In U.K. mode, this parameter is also used to determine the age at which excess revaluation occurs. If the member benefit commences immediately upon decrement, select constant age and enter 15. Otherwise, enter the age at which the member would commence pension benefits, if living. If the assumed member retirement age varies by participant, select age from database field and choose the name of the desired numeric database field (for active members). For inactive members you may choose a numeric or date field. In German mode, alternatively, you may select <actuarial retirement age> as the field. in which case you must set the actuarial retirement age under the Other Valuation Parameters topic of Valuation Assumptions.

Sample Lives

For active sample lives, in liability sample life reports (e.g., PV of Future Benefits, displayed below), the Payment Form Value column for the Post-decrement Death Benefit payment form type incorporates, for each decrement age (member age displayed in the row), the continuation fraction, reduction factors and probabilities of member death at each age after decrement from active status (i.e., after the age in the row).

PV of Future Benefits (Active) sample life report:

 

You can inspect the calculation of values in the Payment Form Value column for active members by viewing the Payment Form Value sample life report for this Benefit Definition. Note that the payment form value denotes the payment form’s present value at decrement; thus this report is essentially the same as the PV of Future Benefits sample life report for inactive members, for whom the decrement from active status has already occurred (and thus inactive member present values are as of the valuation date).

The first Payment Form Value sample life report shown below reflects these parameter settings:

• spouse benefit deferred to member age 65,

• coverage ceases at member age 65 and

• the beneficiary is determined at decrement.

The present value shown (the last column of the report) is the product of values in these columns:

1) Expected Spouse Benefit: The cumulative benefit payments that arose from the member dying at any age prior to the age in this row in the Member Age column, weighted by the probability of dying at each of those ages. These values are adjusted by any continuation fraction, early retirement factors, joint life payment form adjustment factors and COLAs – all as of the spouse commencement age (member age 65, in this example). Note that the COLAs, which apply in this example, are reflected in the values of the “Unreduced Benefit at Commencement” column.

2) Interest Discount: The interest discount from the member’s age at death back to the decrement age.

3) Spouse Survival Discount: The probability the spouse will survive from decrement age – when spouse mortality starts to apply, in this example, because the option to determine beneficiary at decrement was selected – to the member age at death.

4) Percent Married: The applicable fraction of the population that is married. In this example, because the beneficiary is determined at decrement age, the percent married is also determined at decrement age.

5) Payment Frequency Adjustment: An adjustment to account for benefits paid more often than annually (for example, monthly).

Payment Form Value sample life report – beneficiary determined at decrement:

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Consider the same example, but with the beneficiary determined at member death. In this case, the present value (the last column of the Payment Form Value report) is the product of values in these columns:

1) Spouse Benefit: The (adjusted) spouse benefit at spouse commencement age (member age 65, in this example), reflecting any continuation fraction, early retirement factors, joint life payment form adjustment factors and COLAs.

2) Probability of Member Death: The probability the member will survive from decrement age to the year of death and then die. For example, if decrement age is 44 and the member dies at age 50, then this column holds the probability of surviving from age 44 to age 50 and dying between ages 50 and 51. Note that because the coverage ceases at member age 65, the values in this column are set to zero for member death at ages older than 65.

3) Percent Married: The applicable fraction of the population that is married. In this example, because the beneficiary is determined when the member dies, the percent married is also determined at member death.

4) Interest Discount: The interest discount from (a) the member’s age at death + 1 year to (b) the decrement age.

5) Spouse Survival Discount: The probability the spouse will survive from

a) the end of the year of the member’s death – when spouse mortality starts to apply, in this example, because the option to determine beneficiary at member death was selected – to

b) the member’s age at death + 1 year (which is the end of the year of death).

Thus all values in this column are 1.

This example applies to ProVal modes of operation other than German; in German mode, a more complex adjustment is made for spouse survivorship and the values in this column are not necessarily all 1.

6) Spouse Annuity Value: The present value, at the member’s age at death + 1 year, of the spouse annuity (an annuity deferred to member age 65, in this example). For a description of how the annuity value is calculated if the spouse’s pension is not deferred or if death occurs on or after the commencement age, see the Technical Reference article Payment form values for mid-year benefits.

Payment Form Value sample life report – beneficiary determined at member death:

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Now suppose that the spouse benefit commences immediately upon the member’s death, coverage never ceases and the beneficiary is determined at the earlier of member death and assumed member retirement age 65. This is a typical “widow benefit” in the Netherlands and can also be used to code spouse benefits after the withdrawal decrement occurs in the UK. In this case, the present value (the last column of the Payment Form Value report) is the product of values in these columns:

1) Spouse Benefit: The (adjusted) spouse benefit at spouse commencement age (which is the spouse’s age when the member dies, in this example), reflecting any continuation fraction, early retirement factors, joint life payment form adjustment factors and COLAs.

2) Probability of Member Death: The probability the member will survive from decrement age to the year of death and then die. For example, if decrement age is 44 and the member dies at age 70, then this column holds the probability of surviving from age 44 to age 70 and dying between ages 70 and 71. Note that because the coverage never ceases (and the mortality table of our example does not “run out” before age 120, the oldest age ProVal can process), the values in this column are not set to zero at any age.

3) Percent Married: The applicable fraction of the population that is married. In this example, because the beneficiary is determined when the member dies, but no later than age 65, the percent married is also determined at the earlier of member death and age 65.

4) Interest Discount: The interest discount from (a) the member’s age at death + 1 year to (b) the decrement age.

5) Spouse Survival Discount: The probability the spouse will survive from

a) the end of the year of the member’s death or from age 65, if the member dies after age 65 – when spouse mortality starts to apply, in this example, because the option to determine beneficiary at member death, but no later than a specified age of 65, was selected – to

b) the member’s age at death + 1 year (that is, to the end of the year of death).

Thus, in our example, all values in this column are 1 for rows with a member age younger than 65, because these rows represent member death before age 65, in which case the earlier of the specified age of 65 and the member’s age at death is simply the member’s age at death (and thus the “from” and “to” points of the spouse survival period are the same).

If the member dies after age 65 (rows with a member age of 65 or older), the value of the spouse survival discount is the probability of the spouse surviving from member age 65 to the member’s age at death + 1 year.

6) Spouse Annuity Value: The present value, at the member’s age at death + 1 year, of the spouse annuity (not deferred, in this example). For a description of how the annuity value is calculated, see the Technical Reference article Payment form values for mid-year benefits.

Payment Form Value sample life report – beneficiary determined at earlier of member death and age 65:

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