In various places in ProVal’s output, you may encounter the term "number" or “headcount”. This term is generally shorthand for the number of participant families or households that are either receiving benefits or have the possibility of receiving benefits in the future.

In rare cases, "number" or “headcount” is shorthand for the number of benefits payable, or potentially payable in the future, to anyone in the participant’s family. This definition is used for emerging inactive participants when there are multiple benefits potentially payable to an individual participant and ProVal cannot determine which benefits go to which participants. This is generally because optional forms within those benefits are specified using separate benefit definitions. See ‘Case 2: benefits payable’ below for more details.

Families or benefits stop contributing to the headcount when there is no longer a liability associated with them, such as when a temporary period has expired.

  

Emerging Inactive Participants - Multiple Benefit Definitions and Election Probabilities

Case 1: Families receiving or expected to receive benefits

For the purposes of this article, a ‘benefit’ is generally one benefit definition (including any optional forms). However, if the total election probability for a contingency is <= 100%, then all benefit definitions will be considered one ‘benefit’ (because ProVal implicitly assumes that these are optional forms of the same benefit). The headcounts for all payment forms within a benefit are combined by adding them together after adjusting for election probabilities.

If there are multiple benefits for the same participant within a contingency (e.g., a participant is assumed to receive both a life annuity and a temporary benefit upon retirement), the benefits are combined by taking the maximum headcount across benefits. Thus, ProVal implicitly assumes that benefits resulting in headcounts are paid to the same participants as much as possible. For example, if a participant has a 90% probability of electing an annuity for Benefit 1 (10% lump sum), and a 50% chance of electing an annuity for Benefit 2 (50% lump sum), ProVal will assume that the 50% who get the annuity for Benefit 2 are part of the 90% who get the annuity for Benefit 1 and the headcount will be 0.9.

Case 2: Benefits payable (rare)

If there are multiple benefits, and the total election probability for any of the benefits is not 100% or 0% (generally because optional forms are specified using separate benefit definitions) then ProVal does not attempt to determine which benefits go to which participants when calculating the emerging inactive headcount. Instead of taking the maximum across benefits as described above, it will add the headcounts across all benefits. This results in a headcount representing the number of benefits payable. For example:

            Benefit Definition 1 – Life annuity – 50% election

            Benefit Definition 2 – Life annuity – 50% election

            Benefit Definition 3 – Lump Sum – 50% election

            Benefit Definition 4 – Lump Sum – 50% election

If benefit definitions 1 and 2 are optional forms of the same plan benefit, and benefit definitions 3 and 4 are optional forms of another plan benefit, then 100% of participants receive a life annuity and the headcount should be 1. But if benefit definitions 1 and 3 are optional forms of the same plan benefit, and benefit definitions 2 and 4 are optional forms of another plan benefit, then 50% receive two life annuities and the other 50% receive two lump sums, and the headcount should be 0.5. Since ProVal cannot determine which of these answers is the correct headcount, it instead adds across all benefits to calculate the total number of benefits payable, which is 1.0 (50% x 2 life annuities; immediate lump sums do not contribute to emerging inactive headcount). This result may be greater than 1 in other cases.

In deterministic and stochastic forecasts in U.S. Qualified mode, the PBGC flat rate premium and, under PPA law, the loading of the at-risk liability and normal cost depend on the inactive headcount. Please note that these calculations may be overstated when the emerging inactive headcounts in the underlying core projection are calculated as the number of benefits payable.

In this case, there are two methods to get ProVal to calculate the true headcount instead:

• If possible, set the optional forms up using the optional forms feature, rather than as separate benefit definitions.
• Run a separate valuation where the “duplicate” benefits are eliminated, leaving one benefit per participant. In this example, eliminate either Benefits 2 and 4, or 3 and 4, as applicable.