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Other Valuation Parameters

The Other Valuation Parameters topic addresses

German Parameters 

In German mode, to calculate actuarial retirement age , check Set actuarial retirement age using and select one of the methods below:

If some records have contractual or otherwise established actuarial retirement ages, use Override with retirement age from database field to select a database field which contains the actuarial retirement age. Any records which are missing values in that field (or all records, if <not on file> is selected) will be subject to the rule specified above.

In German mode, check the box Exclude terminated vested participants from liabilities  to exclude terminated vested participants when over NRA (Normal Retirement Age) or when over NRA and SVRA (where SVRA is the State Pension Retirement Age). Note that the normal retirement age is defined as part of the Benefit Promise (see Normal Retirement).  Also, while the participants may be excluded from the liabilities, they are still included in the (inactive) count.

In German mode, check the box Round liabilities and benefits​ to round the results for each record. This will affect both aggregate and individual results. When checked,

Note that when Scaling Factors are applied, no rounding takes place after the scaling.

Also in German mode, the first funding age (the first age for which the record will generate a normal cost) is determined, for a funding valuation, by the Teilwert Parameters topic (unless overridden, under the Additional Liabilities topic, for linear proration to decrement attribution). The first funding age, for an accounting valuation, is the same as the hire age defined by the Active Data topic of Census Specifications (unless overridden, under the Liability Methods topic, for linear proration to decrement attribution).

This is not the place to enter marital assumptions for current inactive participants. In OPEB mode, that is done under the Inactive Data topic of the Census Specifications command. In the pension modes, an inactive participant’s spouse information is contained in database fields, not determined according to an assumption. See Inactive Data - pension modes and Inactive Benefits - pension modes for more information.

Inclusion Parameters (not applicable to German mode or for Long Term Disability assumptions in OPEB mode. )

These parameters should be used to tell ProVal who is eligible to be included in the plan, and thus which database records will be considered for processing. The values of these parameters also define the first funding age, that is, the first age for which the record will generate a normal cost (in general U.S. pension industry parlance, this is also known as entry age).

For guidance on inclusion in liabilities for U.S. qualified pension plans, refer to the appropriate Internal Revenue Code (IRC) sections and Internal Revenue Service (IRS) regulations, including (especially for a law selection other than “PPA”) the IRC Section 412 regulations regarding reasonable funding methods. See also any other relevant IRS pronouncements.

Participants are included in (most) liabilities at later of is the group of parameters used, in the U.S. qualified and Canadian registered modes, to indicate the first age for which a normal cost will be generated for an active participant. Regardless of those parameter settings, however, all participants are included in certain specialized liabilities: current, PBGC variable rate premium and target liabilities (as applicable for your law selection) in U.S. qualified mode; solvency liability in Canadian registered mode. In the U.S. public pension, universal and OPEB modes, the Participants are included in liabilities at later of parameter group pertains to all types of liabilities and indicates the first age for which a normal cost will be generated for an active participant for all liability calculations.

Note: If the law selection for a U.S. qualified mode funding assumption set is “PPA”, parameters for inclusion do not apply (and therefore do not appear in the Other Valuation Parameters dialog box), because all employees are included in target liabilities. However, under this law selection, inclusion parameters are relevant to any actuarial liabilities computed (including present value of future benefits) and may be specified under the Actuarial Liability topic, as an adjustment to the first funding age. The parameter group (contained in the First Funding Age dialog box) is entitled Participants are included in actuarial liabilities at later of.

There are three types of requirements that you may specify for inclusion, for specifying the Age, Service, and Date conditions for including an active participant in the cost method calculations. Very often, these requirements indicate eligibility for participation in the plan, as funding generally would begin (and a normal cost would first be calculated) under an entry age normal liability method, for example, for participants at plan entry. For example, if participants are included in the plan upon attainment of age 21 and completion of one year of service, then, to fund from plan entry as if the plan had always been in effect, enter 21 in the Age field and 1 in the Service field. To fund instead (atypically in the U.S. qualified mode) from the actual plan entry date, i.e., later of satisfaction of the age and service eligibility requirements and the plan’s effective date, also enter the plan effective date in the Date field. The Date parameter was introduced for funding a voluntary employee benefits association (VEBA), because funding for years before the VEBA was established is not permitted. Alternatively, to fund from hire date, enter zeros in these three text fields. In certain situations, you may wish to specify –1 as the Service requirement, rather than 0: see the description below of the service parameter for details.

Satisfaction of these requirements is determined with no rounding. An individual 20.9 years old will not be considered to have met an age 21 requirement. Similarly, an individual with 0.9 years of service will not be considered to have met a one year service requirement. If you wish to apply specific rounding requirements for service, you may calculate an appropriately rounded service field in the database and refer to it as the service field for funding eligibility, you may refer to an appropriately rounded Service Definition, or you may enter the requirement as a partial year of service (e.g. 0.5).

You may specify what Service for eligibility for inclusion in plan funding calculations is based on, using either a database Field or a Service Definition. If a field is selected, it may be either a start date or a field containing service as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current project or, if you need fractional service accumulation (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.

If service is measured for this purpose from date of hire, then this parameter may be set to “<date of hire>”. ProVal understands this field to be the one specified in Input | Census Specifications | Active Data as the Date of hire (or hire age) parameter.

Note that, under an entry age liability method, if a service requirement of 0 years is specified, the funding period will begin on the first valuation date anniversary at which service is greater than (or equal to) zero, or at which the age nearest birthday matches rounded hire age, if later. According to this definition, ProVal will take the following steps to determine the beginning of the period over which plan costs are spread for an individual:

  1. Calculate the participant’s rounded age at the Valuation Date specified under the Execute | Valuations or Execute | Core Projection command;
  2. Determine the participant’s exact service at the valuation date (based on the Service field specified);
  3. Subtract one year of service for each prior year of age; and
  4. Select the first year where service is greater than (or equal to) zero.

This may result in a first funding age a year higher than the rounded age at hire. For example, consider an employee born on 3/1/1964 and hired on 7/1/1986. If the valuation date is 1/1/1999 and the Service Field is the hire date, then the first anniversary of the valuation date when service (from hire) is greater than (or equal to) zero is 1/1/1987. The calculations for steps 1 through 4 are:

  1. rounded age on the valuation date is 35 (the rounded difference in years between 3/1/1964 and 1/1/1999);

  2. exact service at the valuation date is 12.5 years (the difference between 7/1/1986 and 1/1/1999);

  3. “count down” service at 1/1 of each year prior to 1999 (11.5 years at 1/1/1998, …, 0.5 years at 1/1/1987; -0.5 years at 1/1/1986); and

  4. first plan year when service is not less than zero begins at 1/1/1987. This is when funding starts.

In this example, exact age at hire is 22.3333 (the difference between 3/1/1964 and 7/1/1986), rounded age at hire is 22 and, at 1/1/1987, the rounded age is 23 (the rounded difference in years between 3/1/1964 and 1/1/1987), not 22. Thus the funding period starts at age 23. If you would like to insure that the funding period always begins at the rounded age at hire, 22 in this example, you can specify -1 as the required service amount. In this example, ProVal will then select the valuation date anniversary one year earlier, 1/1/1986, to start the funding period. This is the first year when service is greater than (or equal to) -1, the service requirement entered in the Service Field parameter.

If you specify -0.5 as the required service, the funding period will begin at the valuation date nearest the actual hire date.  Consider the example above but with a hire date of 7/8/1986 (so that the fraction of elapsed time between hire and the preceding and following valuation date anniversaries is not equal).  Exact service at the valuation date is 12.4849 years.  Counting down, service at 1/1/1987 is 0.4849 years and at 1/1/1986 it is -0.5151 years.  Service at 1/1/1986 is greater than -1 but not greater than -0.5, so funding begins at 1/1/1987.             

Claims Timing (OPEB mode)

In OPEB valuations, Timing of claims payments may be beginning, middle, or end of period, referring to the period beginning on the valuation date, regardless of the decrement timing assumption.  For LTD valuations, the period is monthly. For all other valuations, the period is annually. A single claims payment is assumed for each period; if payments are made more often during the period, select the timing that approximates the average payment date. If payments are made periodically throughout the period, middle of period timing is probably the appropriate choice. If either middle or end of period timing is selected, ProVal needs to discount, for interest and survivorship, the equivalent single claims payment from its assumed payment date (at middle or end of period, respectively) to the beginning of the period and to apply increase rates (e.g., trend) from the beginning of the period to the assumed payment date. Hence ProVal will Adjust the claims payments (to middle or end of period) as follows:

For a payment form involving just one life (the member),

1) the survival probability to the end of the period is p, or 1-q, if the “End of year” or "End of month" option is selected and

2) the survival probability to the middle of the period, if the “Middle of year” or "Middle of month" option is selected, is computed as the average of the probabilities of surviving to the beginning and to the end of the period, i.e., the average of 1 and 1-q = (1+1-q) / 2, or 1-(q/2).

For a payment form involving two lives (the member and the spouse),

1) the survival probability to the end of the period is pm x ps = (1-qm) x (1-qs), if the “End of year”  or "End of month" option is selected and

2) the survival probability to the middle of the period, if the “Middle of year” or "Middle of month" option is selected, is computed as the average of the probabilities of surviving to the beginning and to the end of the period, i.e., the average of 1 and (1-qm) x (1-qs) = {1+[(1-qm) x (1-qs)]} / 2.

Exception: life insurance payments are not discounted for mortality (survivorship) to the beginning of the period.

This claims timing parameter is ignored for purposes of applying a lifetime or annual limit that is parameterized to value a medical spending account. For purposes of projecting the spending account, claims are always assumed to be paid at the beginning of the year. This assumption will affect only the year in which the spending account is exhausted.

This claims timing parameter is also ignored in the case of lump sum payment forms, because the payment is always assumed made at the beginning of the period.

Note: In sample life reports for payment form values (actives) or liabilities (inactives), the interest discount and mortality discount are multiplied together and are reflected in the “payment timing discount” column. The increase rates (e.g., trend) adjustment is applied to the benefit amount at decrement and is reflected in the “coverage amount” column. These sample life reports show the calculation of Payment Form Values for inactives and actives under a beginning of period decrement assumption. For actives under a middle of year decrement assumption, the beginning of year Payment Form Values are averaged and discounted with interest by a half-year. For more, see the Technical Reference article Decrements: beginning of year vs. middle of year.

Marital Assumptions (not applicable for Long Term Disability assumptions in OPEB mode.) 

Marital assumptions (fraction married, fraction electing J&S, husband/wife age difference) for active participants are used in connection with joint and survivor Payment Form Definitions, post-decrement Payment Form Definitions (which involve a post-decrement death benefit paid as the survivor portion of a joint and survivor annuity, such as a REA death benefit in the U.S. qualified mode) and with Benefit Definitions initiated by the death contingency. For additional information, see Payment Form Definitions- pension modes or Payment Form Definitions - OPEB mode. For information about using actual spouse data for the husband/wife age difference for active participants, see the discussion under the Active Data topic of the Census Specifications.

Note that the marital assumptions of the Other Valuation Parameters topic are also used in some circumstances involving missing spouse data for inactive participants, but it is strongly recommended that you provide complete spouse information for inactive participants, under the Inactive Data topic of the Census Specifications command.

Fraction of population that is married is specified separately for Male employees and Female employees and is used to value death benefits for their spouses, as well as to determine liabilities for benefits paid as joint and survivor annuities (pension modes) or payment forms to the spouse (OPEB mode). Joint and survivor annuity benefits (pension modes) for the fraction of members assumed to be single are valued as a life annuity. Enter values as a number between 0 (all single) and 1 (all married).  The fraction married can be entered as a Constant value or specified by an age-based and/or sex-based Table selected from the Fraction Married Table Library. If the fraction married is specified by a table, select from the list of tables unhidden in the current Project, or to create a new table (or modify and existing one), click the button.

If the fraction married is specified by a table, there is an option to select tables according to the contents of a coded database field, a useful option if different tables are needed for different groups of records, as identified by values of a coded database field (e.g., Division) on each record. The Parameters button becomes accessible if “<Varies by coded database field>” is selected for the Fraction of population that is married parameter; clicking this button accesses additional parameters for these options. Select from the list (of all coded fields in the Data Dictionary and unhidden in the current Project) that appears when you click the arrow for the parameter Coded database field. ProVal displays a spreadsheet containing a column with the heading Database Code and each code of the selected field appears in this column. To Enter a table for each code, click on the code’s row in the Rate Table column and then click the arrow that appears. Choose the applicable table from the list. Click the Edit Rates button to create a new table or change an existing one. Please note that ProVal will not execute a Valuation or Core Projection that includes lump sum factor Benefit Formula Components that are based on a joint and survivor type of payment form if the fraction of the population that is married varies by a coded database field.

Fraction of married population electing J&S option generally is used in connection with a pension payable as a U.S. qualified joint and survivor annuity and therefore is included only in the U.S. qualified, U.S. public and universal pension modes. (It applies to payment forms of the “joint and survivor” type, not to “joint annuity” or “reversionary” types, and therefore is not included in OPEB mode.) The fraction is specified separately for Male employees and Female employees. Enter the fraction as a number between 0 (none electing the J&S option) and 1 (all electing the J&S option). This parameter typically is coded as 1 (that is, all married participants are valued under a joint and survivor annuity form). When this fraction is less than 1, some married participants are valued as electing a (single) life annuity.

Number of years husband is older than wife, the age difference between active plan members and their spouses, is specified separately for Male Employees and Female Employees. It is used to determine the appropriate mortality and benefits for spouses of active participants who either die (with a death benefit payable to the spouse) or retire, with benefits paid as a joint and survivor annuity (pension modes) or with benefits payable to the spouse (OPEB mode). For example, if husbands are assumed to be 3 years older than their wives, regardless of whether the husband or the wife is the employee, then enter “3” for male employees and “3” (not “-3”) for female employees. The number of years of difference in age can, optionally, be entered as a Constant value or specified by an age-based and/or sex-based Table selected from the Age Difference Table Library. If the age difference is specified by a table, select from the list of tables unhidden in the current Project or, to create a new table (or modify an existing one), click the button.