Inactive Benefit Definitions - pension modes except U.K.
See also Inactive Benefit Definitions - U.K. pension mode
An Inactive Benefit Definition specifies the amount of pension payment or life insurance coverage and the form in which it is paid. There are additional parameters, accessed via the COLA Parameters button, for an inactive benefit payable as an annuity that is subject to COLAs (see the discussion, in the COLAs section, at the end of this article).
Name is a text field in which to enter a description of the benefit. This may be any descriptive phrase, including spaces.
Enter the Annual benefit amount as of the Valuation Date (in a Core Projection, as of the initial, or baseline, valuation date). This amount can be defined by either a database Field or by a database Expression that computes the amount payable from database field(s). In the case of annuities, this must be an amount payable annually. For example, if a monthly benefit payment is in database field “Bft”, then the ProVal benefit amount can be defined by the database expression “12 * Bft”. Note that defining this benefit amount as a database expression does not change the underlying database field, “Bft”: to change the contents of this field, use the Define Field by Expression command of the Database menu and Data Editor. ProVal will use the input value of the Annual benefit amount without adjustment, so it should already be limited by the US Internal Revenue Code section 415(b) maximum benefit or the Canadian ITA maximum pension, if relevant.
If inactive members receive pension benefits subject to COLAs, check the Apply COLAs from assumptions box and click the Parameters button to access additional COLA parameters. For details about coding, see the discussion in the COLAs section at the end of this article.
In the U.S. qualified mode, check Exclude from vested liabilities to indicate whether a liability for this benefit should be included in the vested liabilities. Check this box if you wish to exclude the liability for this Inactive Benefit from vested liabilities.
In Universal mode, check Value as a funding reserve to only include this benefit in funding liabilities and exclude it from all accounting and experience liabilities. This is common in Switzerland.
In German mode, check Include in Tax (Teilwert) liability to indicate whether this benefit should be included in the Teilwert liability.
The Payment form is the form in which the benefit is paid.
In all modes, the Payment form may be determined in one of two ways. Often, a Payment form field exists, that is, a coded database field with a code corresponding to each payment form. In other cases, select the option of a Single payment form for all records.
If you specify a Payment form field that describes the payment forms, then the box below the Payment form field parameter will list, on the left side, the labels that you entered in the Data Dictionary for the codes of the selected field. For each of these labels, identify the associated ProVal payment form by clicking the list item and completing the parameters in the next dialog box. That dialog box will map the entry of your coded database field to the ProVal payment form that you describe.
If you specify a Single payment form for all records, then click the Parameters button. This will lead to another dialog box, in which you describe the ProVal payment form. See Inactive Payment Form - Pension Modes for more information.
COLAs
If inactive members receive pension benefits subject to COLAs, checking the Apply COLAs from assumptions box and clicking the Parameters button accesses additional parameters in the Cost-of-Living Adjustments (COLAs) dialog box, to specify restrictions on the assumed COLA for this Inactive Benefit Definition.
Regarding payment forms that a COLA can be applied to, please note:
Note that if a duration-based COLA (permissible for payment period COLAs only) is applied or if a (constant) COLA is applied during a deferral period, the Annual benefit amount value (still) should be the currently paid amount as of the Valuation Date, not the original amount paid when benefits commenced in a year prior to the year beginning on the valuation date, and not the projected initial amount to be paid when deferred annuity benefits commence at a future date. For duration based COLAs, duration is measured from the date indicated by the value of the Benefit commences parameter of the payment form of the inactive member’s Inactive Benefit Definition. Therefore, if you have a payment period COLA that varies by duration, be sure to specify a commencement date prior to the valuation date for benefits that are already in pay status; that is, define commencement by reference to a date or age field rather than by selecting the immediately option.
If the following parameters of this dialog box (limiting the annual benefit increase or the total benefit amount, or applying a minimum benefit) are not completed, ProVal will apply the cost-of-living adjustments (COLAs) specified under the Cost-of-Living Adjustments topic of Valuation Assumptions and the Increase & Crediting Rates topic of Projection Assumptions without restriction. Also note that if an advanced COLA expression is assumed, the expression (which pertains to the COLA amount, rather than to the total pension benefit amount) will be evaluated first before any parameter values specified here:
If the Limit annual increases to box is checked, ProVal will apply the COLAs specified in the assumptions but limit the annual increase in the pension benefit to the Flat dollar amount specified in the text field. For example, if your plan provides a 3% COLA on the first $12,000 of annual pension, then enter the dollar limit of 360 (that is, 12,000 multiplied by .03) as the flat dollar amount.
If the No increases once benefit exceeds box is checked, ProVal will apply the COLAs but limit the resulting annual pension to the amount contained in the specified Database field. Thus, you may code, for years after the valuation date, limits on the annual pension such as “x times the benefit amount at decrement”, “x% of final average salary at decrement”, “$x plus the benefit amount at decrement”, a flat dollar maximum pension amount or the U.S. Internal Revenue Code Section 415 limit, or the Canadian ITA maximum pension, evaluated at the date of decrement. For example, if the annual pension amount with COLA increases is not permitted to exceed 1.3 times the initial pension amount at decrement, then compute 1.3 times the inactive member’s initial annual pension and put that value in the database field. Note that ProVal will not limit the current benefit (i.e., the benefit amount as of the Valuation Date, as determined by the Annual benefit amount parameters) if it is greater than the limited pension amount.
If both of these boxes are checked, both the amount of annual pension increase and the total pension amount as of each date subsequent to the valuation date will be limited.
If the Minimum benefit box is checked, ProVal will apply a minimum to the Annual benefit amount. The minimum benefit is applied to the benefit computed for the current year and all future years, after application of any COLA increase and after any limit applied by the above parameters. Please note that the minimum benefit amount contained in the Database field is not increased by the COLA assumption.
If the Cost-of-living Adjustments (COLAs) topic of your Valuation Assumptions specifies simple COLAs or applies an advanced COLA expression containing the #DECBEN (i.e., benefit at decrement) operator, then Benefit at decrement indicates the numeric Database field containing the amount of the annual pension benefit at the date the decrement from active status occurred. This amount should contain all adjustments except for COLAs. For example, if the benefit does not commence at decrement, any early retirement reduction or postponed retirement increase should be reflected already in the amount contained in this database field. (If your Valuation Assumptions specify compound interest COLAs, then you may leave the parameter setting at the pre-set, "<n/a>" option.)