Benefits, Roll Forwards, and Rounding
This topic pertains to overriding ProVal’s calculation of rolled forward liabilities, expected benefit payment overrides, categorizing benefits in receipt, and the rounding of Valuation Set and Forecast calculations:
The Roll Forward parameters provide information regarding the roll forward of liabilities to a measurement date that is later than the liability calculation date.
The Accounting Expense parameters allow you to override the expected benefit payments used for expense.
In US Qualified modes, for all law types other than PPA, the Current Liability parameters provide information regarding the roll forward of current liability to the end of the year.
In the U.S. qualified and universal pension modes, the benefits in receipt split parameter allows you to categorize the benefits of inactive participants as either “in receipt” or “deferred”, according to the option selected for this parameter. Thus you may split liabilities for inactive participants between those considered to be currently receiving benefits and those whose benefits are considered deferred. This split affects the ASC 960 exhibit, the pre-PPA and multiemployer breakdown of inactive participant current liability in the minimum-basis full funding limitation exhibit and the PPA breakdown of target liability for inactive participants in the exhibits developing the PPA and PBGC funding targets.
In modes other than US Public, when the applicable accounting standard is either ASC 715 or IAS 19, enter the fraction of benefits payable from plan assets. This may be useful for non-statutory plans where some benefits are paid from plan assets and some are paid from general assets. This parameter will affect the calculation of expected return on assets for accounting expense as well as the projection of assets in a forecast.
The rounding parameter allows you to specify the desired degree of rounding of results. The rounding occurs before and during the calculations, so that results will “add up” in exhibits and in the detailed output available under the Output menu.
If the measurement date is after the liability calculation date and you wish to reflect actual benefits paid during the roll forward period, check the box to override roll forward benefit payments. If your roll forward period is greater than 12 months, enter the override representing the first 12 months in Year 1 and payments representing months 13-24 should go in Year 2. You may either enter override benefit payments as actual amounts or annualized. Actual amounts should reflect the actual value of benefits paid for the roll forward time period. Selecting annualized indicates that ProVal should prorate the amount entered to reflect a fractional roll forward period.
In modes other than US Public Pension (where the following parameters are not available), indicate how to adjust expected benefit payments for the difference between overrides and expected. You may either select to adjust first year benefit payments which will add the entire difference to the first term in the benefit payment stream, or spread over all future benefit payments which will adjust each term in the benefit payment stream. For more information regarding these calculations, see the technical reference article Roll forward of liabilities.
Note: When accounting output values are displayed, it is the expected benefits payments override amount for expense, not for the roll forward (if different), that is shown.
U.S. public pension & OPEB modes
In these two modes, liabilities may be rolled forward up to 30 months. Therefore additional benefit payment overrides may be specified to handle the roll forward beyond two years. If you have checked the Accounting roll forward override box, and your accounting roll forward period is greater than 24 months, you must enter a Year 3 override.
If you check the Funding roll forward override box (U.S. public pension and OPEB modes only), ProVal will use the specified amounts as the values of expected benefit payments to roll forward the actuarial liability from the liability calculation date to the Valuation Date, if the dates differ. This input will be ghosted unless liabilities are calculated as an earlier date than the funding valuation date. If you have checked the funding roll forward override box, and your funding roll forward period is greater than 12 months, you must enter a Year 2 override. If you have checked the funding roll forward override box, and your roll forward period is greater than 24 months, you must enter a Year 3 override.
If liabilities are rolled forward, you must enter a salary scale to be used to roll forward the normal cost (service cost) to the measurement date for cost methods that are based on a level percentage of pay or the pure unit credit cost method.
If your valuation date is later than the liability calculation date, check Roll forward expected benefit payments to the measurement date to use the EBO basis, or in OPEB mode EPBO basis, projected benefit payment stream as of the measurement date to derive the expected benefit payments for interest cost and expected return on asset components of expense. This roll forward happens automatically if using the spot rate interest method for determining interest cost. Also note that if this option is selected in a forecast, the underlying core projection accounting benefit payments must be saved for all sensitivities.
Check the Override accounting expense benefit payments box, to use the specified amount as the value of expected benefit payments to determine pension expense, in particular, to calculate the interest cost on expected benefit payments and the expected return on assets. Note that ProVal calculates, displays (in the output produced under commands on the Execute and Output menus) and thus overrides expected benefit payments on the EBO basis (or EPBO basis, in OPEB mode).
Current Liability (U.S. qualified mode only, all law selections except “PPA”)
In a forecast, expected benefit payments calculated under the Core Projection command will be overridden only for the baseline year of the forecast; ProVal will not override the expected benefit payments value calculated at future (forecast) valuation dates. Note that the parameter to override experience benefit payments (a.k.a. cash benefit payments) paid out of plan funds in the baseline year is found under the Forecast Analysis topic.
In Valuation Set Output and Deterministic Forecast Output, the split of the amount of expected benefit payments by status and benefits, if selected, will be multiplied by the ratio of the amount entered here to the expected benefit payments amount calculated by ProVal, so that the pieces sum to the override amount entered.
Benefits in receipt split (U.S. qualified and universal modes)
For purposes of allocating inactive participant liabilities according to the categories of the ASC 960 statement of present value of accumulated benefits and the IRS Form 5500 Schedule B/MB breakdown of RPA ’94 current liability and Schedule SB breakdown of target liability, the Benefits in receipt split based on parameter indicates how to differentiate benefit payments currently (i.e., as of the Valuation Date) in pay status from deferred benefit payments. In a forecast, "currently" refers to pay status as of the Valuation Date for initial inactive participants (including participants whose status is mapped to the "Vested valued through active" ProVal status) and as of the decrement date for emerging inactive participants (aka decrementing active participants).
Select the Payment form option to base the inactive liability split on the benefit payment commencement date indicated by the Payment Form of the participant’s Inactive Benefit(s) (for participants with a "Vested valued through active" status, the payment form of the participant's Benefit Definition(s)) or, for emerging inactive participants, indicated by the payment form of the Benefit Definition(s) initiated by the contingency causing the decrement from active status.
Note that, under this option, 1) initial inactive participants whose status is mapped to the ProVal “Vested” status who are at or older than the payment commencement age on the valuation date are considered currently in receipt, or in pay status, 2) initial inactive participants whose status is mapped to the ProVal “Vested valued through active” status are always considered not currently in pay status and 3) initial inactive participants whose status is mapped to a ProVal “Retired”, “Disabled” or “Survivor” status and who are younger than the payment commencement age on the valuation date are considered not currently in pay status. Treatment of emerging inactive participants is similar: the payment status is evaluated at the decrement date and if payments are considered in receipt, the contingency initiating the benefit determines the status category (“Retired”, “Disabled” or “Survivor”) for display of results in Output; if payments are not considered in receipt, the status category is "Vested".
Select the Status code option to base the inactive liability split on the value contained in the status field of the inactive record or, for an emerging inactive participant, determined by the contingency initiating the benefit (as discussed for the preceding option). Under this option the total liability for all benefits of an inactive, or emerging inactive, participant whose status is mapped to a ProVal “Retired”, “Disabled” or “Survivor” status is considered to be in pay status, or currently in receipt, and the total liability for all benefits of an inactive, or emerging inactive, participant whose status is mapped to either of the two ProVal vested statuses is considered to be not in pay status, or deferred. (Note that a vested status mapping is not redetermined, as retired, when payments commence.)
Select the Status code if Vested, otherwise payment form option to base the inactive liability split on both 1) the value contained in the status field of an initial inactive participant or the status determined by the contingency initiating the benefit of an emerging inactive participant (as described above) and 2) the benefit commencement date of the relevant payment form(s) of the participant's benefit(s). Under this option, the total liability for all benefits of a participant whose status is mapped to either of the two ProVal vested statuses is considered to be not in pay status, or deferred. (Again, the vested status mapping is not redetermined, as retired, when payments commence.) For inactive, or emerging inactive, participants whose status is mapped to one of the other ProVal inactive statuses, the split will be based on the commencement date indicated by the payment form(s) of the participant's benefit(s), as discussed for the preceding options.
Select the degree of Rounding you wish ProVal to use when displaying calculation results. Note that this parameter always determines the degree of rounding displayed for output variable values under Valuation Set and forecast Output commands, whether viewed under the Output menu or under the Valuation Set and forecast commands of the Execute menu. You may, however, select a different degree of rounding when you view exhibits under the Valuation Set Exhibits and Deterministic Forecast Exhibits commands. The rounding occurs before and during the calculations, so that results will “add up” in the exhibits and in the detailed output available under the Output menu.
You may specify to round to the nearest $1, $100, $1,000 or $1,000,000. If no rounding is desired, select “<NONE>”. If a degree of rounding other than “<NONE>” or $1 is specified, be sure that this selection is appropriate for the magnitude of your liabilities. For example, if you select $1,000,000 rounding but your liabilities amount to just $700,000, undesirable results may be produced. Note that in a forecast for which the Forecast Analysis Use contribution timing to calculate interest on the receivable for funding assets (in first year) parameter has been set to achieve the objective of equal end-of-year funding and accounting asset market values, it is unlikely that the desired result will be attained with such a broad degree of rounding.
In the U.S. qualified mode, under the “PPA” law selection, in order for certain ratios and percentages (such as the AFTAP) to be rounded down in Valuation Set Exhibits and forecast exhibits, the “<NONE>” option must not be selected. The preferred option is $1 rounding, under which all decimals are rounded to four places, and truncated if required. (Because the “<NONE>” option performs no rounding, it produces ratios and percentages that are not truncated when displayed in the exhibits.)
Also in the U.S. qualified mode, under any law selection, if this Asset & Funding Policy will be used to produce a Valuation Set whose results will be exported under the Government Forms Extract command, $1 rounding should be selected. Results under other rounding options may have an undesirable effect on internal consistency of arithmetic calculations in the Form 5500 Schedules B, SB and MB and in the PBGC Comprehensive Premium Filing form.