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Regulatory Data

The Regulatory Data dialog box, available in all modes (except Long Term Disability assumptions in OPEB mode), is applicable to both funding and accounting assumptions and contains tabbed sections that direct you to the parameters pertaining to regulatory data items. These parameters are listed here by the tabbed section in which you will find them and details about them are provided in separate sections of this article below the list:

U.S. Maximums

U.S. Social Security

Canada

Germany

U.K.

The Regulatory Data dialog box also provides access to a list of ProVal’s historical data, via the Historical Data button; click it to view (and print, if you wish) a list, by calendar year, of Historical Regulatory Data for the relevant tab as contained in ProVal. If you wish to view all historical data, click the arrow next to the button and request the listing for All Data. Published regulatory data values are listed, including rounded values for unrounded limits. (Certain German basal data are already rounded, and/or published in DM rather than EUR.)

If the calendar year of the valuation date (as indicated by the Valuation Date parameter of the Valuation dialog box or Core Projection dialog box) is after the last year displayed in the Historical Regulatory Data list, then you must add values, for at least one year, for any regulatory items that apply to your plan (as indicated by the elements of the Plan Definition). Furthermore, you may enter overrides of ProVal’s historical data for years that are displayed in the list. To add or override values, select the appropriate tab and complete its parameters. Note that any values entered apply only for years up to and including the year of the valuation date. For any year after the year of the valuation date, the value you wish ProVal to use for a regulatory data item is defined elsewhere, under the Increase & Crediting Rates topic.

As an alternative to overriding regulatory data manually (or, under the U.S. Maximums tab or Germany tab’s Overrides button, by use of the Populate button, discussed in a later paragraph), you may override by use of the regulatory data text files that, beginning with version 2.23 of ProVal, are included in the ProVal system files: ProVal needs to retrieve historical regulatory data and will try to get the data from the following text files:

RegMaxBen.txt U.S. IRC Section 415 maximum benefit
RegMaxComp.txt U.S. IRC Section 401(a)(17) maximum compensation
RegWageBase.txt U.S. Social Security wage base
RegCPI.txt U.S. Social Security CPI
RegNatAvgWage.txt U.S. Social Security national average wage
RegCanYMPE.txt Canadian YMPE
RegCanMax.txt Canadian ITA maximum pension
RegAvgIncWest.txt German Average Income for former West Germany (i.e. “Durchschnittsentgelt, alte Bundesländer”)
RegAveIncEast.txt German Average Income for former East Germany (i.e. “Durchschnittsentgelt, neue Bundesländer“)
RegGerBBGW.txt  German Social Security Contribution Ceiling, Statutory (i.e. “Beitragsbemessungsgrenze, Gesetzliche Rentenversicherung”)
RegGerBBGWM.txt  German Social Security Contribution Ceiling, Coal Miners (i.e. “Beitragsbemessungsgrenze, Knappschaftliche Rentenversicherung”)
RegGerARWW.txt German Current Pension Value for former West Germany (i.e. “Aktueller Rentenwert, alte Bundesländer”)
RegGerARWE.txt German Current Pension Value for former East Germany (i.e. “Aktueller Rentenwert, neue Bundesländer”)
RegGerBBGKV.txt German Healthcare Contribution Ceiling (i.e. “Beitragsbemessungsgrenze, Krankenversicherung”)
RegUKLEL.txt U.K. Lower Earnings Limit
RegUKCPI.txt U.K. Consumer Price Index
RegUKRPI.txt U.K. Retail Price Index
RegUKS148.txt U.K. Section 148 Orders
RegUKReval.txt U.K. Fixed Revaluation Rates

 

To find these files, ProVal will search through the following three directories in the order listed below:

Client directory location of the library files for the currently open ProVal client
User directory location of the user’s ProVal configuration file, PROVAL.ini
System directory location of the ProVal application files

The standard location for these files is the system directory. However, in rare cases, you may wish to override the limits for a particular client. In that case, you can save a revised set of files in the client directory. The file names are reserved. Please be sure that you have not used these file names for another purpose in any of the directories listed above. If the files cannot be found in any of those directories, ProVal will use a copy of the last used regulatory data stored in the ProVal client.

(Note: Overrides of regulatory data entered manually (or, under the U.S. Maximums tab, by use of the Populate button) for maximum compensation limits and wage bases do not apply, of course, to the values in Custom Regulatory Tables.)

Details for each tab are discussed separately, as follows:

U.S. Maximums

For guidance, see Internal Revenue Code (IRC) sections 401(a)(17) and 415(b), relevant regulations and any applicable Internal Revenue Service Notices, Revenue Rulings, etc..

You may “turn off” the IRC section 415(b) maximum benefit limit and IRC section 401(a)(17) maximum compensation limit for all benefits included in your plan simply by unchecking the Apply Maximum Benefit and Apply Maximum Compensation check boxes. Note that ProVal achieves the effect of no limits by setting the benefit and compensation limits equal to a number so large that it would never take effect, that is, a comparison still is made between the amount computed according to the Benefit formula and the benefit limit. (If you use the #MAXBEN operator, its value will be set equal to this extremely large number). Likewise, a comparison still is made between the amount computed according to a salary operator and the compensation limit. (If you use the #MAXSAL operator, its value will be set equal to this extremely large number). Therefore, for the setting of the Apply Maximum Benefit check box to have an impact on benefits, the Apply 415(b) maximum benefit limit box of the Benefit Definition must be checked, unless, of course, you apply the 415 limit by use of the #MAXBEN operator. Similarly, for the setting of the Apply Maximum Compensation check box to have an impact on salary values used in the Benefit formula, the salary operator’s Salary limit parameter must reflect the 401(a) maximum, unless, of course, you apply the 401(a)(17) limit by use of the #MAXSAL operator. Nor will unchecking the Apply Maximum Compensation check box have an impact on the Valuation Salary and PVFS Output variables if you have not checked the Apply Maximum Compensation Limit to PVFS & valuation salary box under the funding Liability Methods topic. Typically, these Regulatory Data check boxes for applying, or not applying, the limits are used to value a SERP plan that provides the same benefit as the plan sponsor’s qualified plan but without regard to the 415(b) and 401(a)(17) limits. Although there are other ways to code such a SERP plan in U.S. qualified mode, unchecking the boxes permits you to use the same Plan Definition for the qualified and SERP plan runs.

In all modes, the U.S. Maximums tab allows you to enter Overrides to ProVal’s Historical Regulatory Data values (if your Valuation Date is in a year for which data is already published) and/or add them (if your Valuation Date is in a year for which data is not yet published, or, if recently published, may not yet be in ProVal). Enter each value, by the Year to which it applies, in the Maximum Benefit dollar limit, Unrounded, column and/or the Maximum Compensation limit, Unrounded, column; ProVal determines the Rounded limits and displays them to the right of the unrounded limits. It is the unrounded limits, however, that are projected to future decrement dates (and then rounded). (As noted above, an override entered here for Maximum Compensation does not apply to a custom regulatory table of the Compensation Limit Type.)

A common use of overrides is to value plan liabilities as they existed prior to a law change. In the U.S. qualified mode, an override has been commonly used to measure the change in accrued liability due to the plan change resulting from automatic cost-of-living increases in the IRC section 415(b) and section 401(a)(17) limits. For example, a 1/1/2005 valuation (reflecting EGTRRA) would be run both with the section 415(b) maximum benefit limit for 2005 of $170,000 (after rounding) and as if the rounded limit had stayed at the 2004 value of $165,000 (that is, override the 2005 limit of $170,000 with $165,000). Or you might want to reflect the section 401(a)(17) maximum compensation for 1994 and later years as if 1994 compensation had not been capped at $150,000 by OBRA ‘93. Sometimes overrides are entered in order to value liabilities under a hypothetical situation. For example, you might want to perform a 1/1/2007 valuation before the value of regulatory data for 2007 is known in connection with an expected merger.

The U.S. Maximums tab allows you to apply the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, or the 2001 Tax Act) to the IRC section 415(b) maximum benefit dollar limit and section 401(a)(17) compensation limit, respectively. See our Technical Reference article entitled “U.S. Internal Revenue Code Section 415 limits“ for details about computation of actuarial equivalence of 415(b) dollar limits under both EGTRRA and prior law. If your valuation date is after 1/1/2001, you must check the Apply 2001 Tax Act actuarial equivalence and rounding provisions box if you wish to reflect

  1. EGTRRA’s adjustment of the IRC section 415(b) maximum benefit dollar limit for a benefit commencing at an age younger than 62 or older than 65, and

  2. EGTRRA’s change in rounding rule for the IRC section 401(a)(17) compensation limit from use of $10,000 intervals to use of $5,000 intervals (i.e., the same rounding rule as used for the IRC section 415(b) maximum benefit dollar limit) to determine limits for years after 2002. Regardless of the setting of this check box, $10,000 rounding is used to determine the limits for years 1995 through 2001 and no rounding is applied to determine limits for years before 1995.

If you check this box and the valuation date is on or before 1/1/2001, the 2001 Tax Act provisions will not be applied, because the earliest possible effective date of EGTRRA is 1/2/2001. (In particular, the commencement age limit reduction will apply for ages younger than social security retirement age and the compensation limit will be rounded in $10,000 increments.) Note that, under all law selections, ProVal’s application of the 2001 Tax Act provisions extends to future plan years beginning after 12/31/2010, when, based upon the law in effect prior to the Pension Protection Act of 2006 (PPA), EGTRRA’s sunset provision was set to expire.

The display of historical regulatory data for the IRC section 415(b) maximum benefit dollar limit and section 401(a)(17) compensation limit for 2002 and later years reflects whether the Valuation Assumptions set was or was not saved with a check in the box to apply the 2001 Tax Act (EGTRRA). In particular, historical maximum compensation limits displayed for a pre-EGTRRA assumptions set (i.e., without the Apply 2001 Tax Act actuarial equivalence and rounding provisions box checked) reflect the former ($10,000) rounding rule for years after 2002, rather than the new ($5,000) rounding rule that is reflected for a post-EGTRRA set. Regardless of whether this box is checked, the 2002 dollar and compensation limits displayed are $160,000 and $200,000, respectively. To use the lower limits in effect for 2002 and later years for plans not amended to reflect the post-EGTRRA limits, you must enter overrides to the unrounded dollar and compensation limits in ProVal’s regulatory data (as described previously in this article).

Note for versions of ProVal 2.25 and 2.26 dated between 8/28/2006 and 5/18/2007, which do not contain the Apply 2001 Tax Act actuarial equivalence and rounding provisions check box: these versions apply the actuarial equivalence and rounding provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, or the 2001 Tax Act) to the IRC section 415(b) maximum benefit dollar limit and section 401(a)(17) compensation limit, respectively, for new, copied (including Saved as New) and replaced Valuation Assumptions library entries. In order to not change this setting for a Valuation Assumptions set used for pre-EGTRRA runs of Valuations and/or Core Projections, be sure to use the Cancel button, not the OK button, when exiting any topic of Valuation Assumptions.

Besides the ability to override limits, the U.S. Maximums tab provides access to the 415(b) Maximum Benefit Limit dialog box (via the U.S. Maximum Benefits button), in which you may adjust the assumptions used to calculate section 415(b) maximum benefit limits, for example, “turning off” the three-year average salary limit or selecting the mortality and/or interest rate basis for an early commencement reduction in the limit. For details, see the separate discussion of the parameters of the 415(b) Maximum Benefit Limit dialog box.

The Populate button accesses the Populate Overrides dialog box, which offers an alternative to manual input of override values for IRC section 415(b) maximum benefit limits and IRC section 401(a)(17) maximum compensation limits. Specifically, you may select one or both of the following options to Override the maximum benefit and compensation limits with:

  1. Prior year’s maximum benefit and compensation limits. This option is useful for running the valuation using last year’s section 415(b) and section 401(a)(17) limits in order to measure the change in accrued liability due to the plan change resulting from automatic cost-of-living increases in those limits. To populate in our example above, select this option, set the Current plan year parameter value as “2005” and click OK. In the 2005 row of the Regulatory Data dialog box, ProVal will display the 2004 limit values of $166,128 / $165,000 and $207,660 / $205,000, respectively, for the unrounded / rounded 415(b) and 401(a)(17) limits.

  2. Maximum compensation limit of $200,000 for 2002 and earlier. This option is useful if the plan provides for use of the 2002 IRC section 401(a)(17) maximum compensation limit for all years up to and including 2002 in final average salary calculations as of decrement dates in 2002 and later years. Under this option, ProVal will enter $200,000 as the unrounded / rounded compensation limit for all years up through 2002 for which its Historical Regulatory Data has values. Note that the override value of $200,000 will not be limited to final average pay calculations, or to decrement dates on or after 1/1/2002; the override values will apply to projected salaries in all calculations, such as cash balance pay credits and career average accruals (which do not, typically, involve final average pay), and regardless of year of decrement, including years through 2001, when the actual historical compensation limits were not, generally, $200,000. If actual historical limits for years prior to 2002 are needed to calculate other plan benefits, run a separate Valuation, without overrides of the 2001 and earlier compensation limits, for those calculations.

As previously noted, the Current plan year parameter of the Populate Overrides dialog box indicates the year for which, under option 1 above, you wish to input the prior year limits.

U.S. Social Security

In all modes, the U.S. Social Security tab allows you to override ProVal’s historical regulatory data values (if your valuation date is in a year for which data is already published) and/or add them (if your valuation date is in a year for which data is not yet published, or, if recently published, may not yet be in ProVal). Enter each value, by the Year to which it applies, in the Social Security Wage Base column, the Social Security CPI column and the Social Security National Average Wage column. Note the one-year and two-year lags, respectively, in historical regulatory data for the CPI and national average wage. Thus, for example, if your valuation date is 1/1/2007 and the last year of ProVal’s historical regulatory data is 2006, then, in order to run your valuation, you must enter an assumed social security wage base value for 2007, an assumed CPI increase rate for 2006 and an assumed national average wage for 2005. (As noted above, an override entered here for Social Security Wage Base will not apply to a custom regulatory table of the Wage base Type.)

Canada

For guidance, see the relevant Income Tax Act (ITA) regulations.

You may “turn off” the ITA maximum pension limit simply by unchecking the Apply ITA maximum pension check box. Note that ProVal achieves the effect of no limits by setting the pension limit equal to a number so large that it would never take effect, that is, a comparison still is made between the amount computed according to the Benefit formula and the pension limit. (If you use the #CANMAX operator, its value will be set equal to this extremely large number). Therefore, for the setting of the Regulatory Data Apply ITA maximum pension check box to have an impact on benefits, the Apply ITA maximum pension box of the Benefit Definition must be checked, unless, of course, you apply the ITA maximum by use of the #CANMAX operator. Typically, this Regulatory Data check box is used to value a SERP plan that provides the same benefit as the plan sponsor’s registered plan but without regard to the ITA maximum pension limit. Although there are other ways to code such a SERP plan in Canadian registered mode, unchecking the box permits you to use the same Plan Definition for the registered and SERP plan runs.  For solvency & windup liability calculations, if the ITA maximum pension limit is "turned on", a check in the Use valuation date value for Solvency & Windup Liability box tells ProVal to apply the ITA maximum pension limit determined at the valuation date for all future commencement dates; if this box is not checked, the limit will be redetermined at each commencement date.  

In all modes, the Canada tab allows you to override ProVal’s historical regulatory data values (if your valuation date is in a year for which data is already published) and/or add them (if your valuation date is in a year for which data is not yet published, or, if recently published, may not yet be in ProVal). Enter each value, by the Year to which it applies, in the ITA Maximum Pension column and the YMPE column. Note that you can override the ITA maximum pension amount only for years through the year of the valuation date. To reflect any ITA maximum pension amounts published for later years, enter increase rates under the Increase & Crediting Rates topic.

Besides the ability to override limits, the Canadian Maximum Benefits tab provides access to the Canadian ITA Maximum Pension dialog box (via the Canadian Maximum Benefits button), in which you may define benefit accrual service (including pre-reform and post-reform service), service for determining the early retirement reduction factors, and elect to apply the public safety occupation early retirement reductions to the maximum pension. For details about both ProVal’s methodology for computing the maximum pension amount and parameter settings for benefit accrual service and early retirement reductions, see the separate discussion of the parameters of the Canadian ITA Maximum Pension dialog box.

Germany

In German Tax / Funding assumptions, check the box to Use regulatory data as of the valuation date for all years for actives in the case that no salary scale or increase rates are assumed, and therefore historical and future data should be filled with values as of the valuation date. (Note that for Terminated Vested records, the historical values at the time of termination will be used.)

Certain regulatory data values in Germany differ depending on the former federal state and the possibility of coal miner status for the citizen, with separate values for former West Germany (i.e., “alte Bundesländer”) and former East Germany (i.e., “neue Bundesländer”), and separate values for Coal Miners (i.e., “Knappschaftlichen”) and Statutory (i.e. “Gesetzlichen”).

Specify the Federal State field, on your database, that is expected to hold the federal state information for each database record or, to indicate that all records should use data for former West Germany or former East Germany, select “<all former West Germany>” or “<all former East Germany>”, respectively. If a coded field is selected, the label of each field code value will appear in the Database Code column; select the appropriate Federal State for each field label as either former West Germany or former East Germany. This field will be used to determine regulatory data values when your plan includes #BBG or #SVR operators, or when PSVaG Liability is calculated in a Tax valuation.

Similarly, specify the Coal Miner field on your database that is expected to hold the coal miner information for each active member or, to indicate that all records should use Statutory or Coal Miner data, select “<all statutory>” or “<all coal miners>”, respectively. If a coded field is selected, the label of each field code value will appear in the Database Code column; select the Coal miner status for each field label as either Coal Miner or Statutory. This field will be used to determine regulatory data values when your plan includes #BBG or #SVR operators.

In addition, State Pension (i.e. “SVR,” or Sozialversicherung Rente) retirement benefits vary for participants who are designated as severely handicapped or part-time pre-retired (i.e., ATZ). Specify the State Pension (SVR) type field on your database that is expected to hold the type information for each active member or, to indicate that no records have a special type, select “<all ordinary retirement>“. If a coded field is selected, the label of each field code value will appear in the Database Code column; select the Benefit type for each field label as either Ordinary retirement, Severely handicapped or Part-time pre-retirement (ATZ).

Click the Overrides button if you wish to override ProVal’s historical regulatory data values (for example, if the latest year of published data should be disregarded) and/or add them (if your valuation date is in a year for which data is not yet published, or, if recently published, may not yet be in ProVal). In the case that a single year of recent published data should be disregarded, the Populate button allows for automatic entry of the overrides. Enter each value, by the Year to which it applies, in the Akt. RW (West) and/or Akt. RW (East) column. Additional entries in the Basal BBG (West), Basal BBG (West Miner) and/or Basal BBG-KV columns will cause ProVal to determine the various Effective limits and display them in the relevant columns. Note that any overrides prior to 2002 are expected in DM rather than EUR. Future decrement dates will consider the unrounded / basal limits, however, when values are projected forward (and then rounded). Effective BBG (East) and BBG (East Miner) values are derived based on Basal BBG (West) and Basal BBG (West Miner) overrides, if available. An important exception occurs if Basal BBG overrides have been entered via the Populate button, in which case BBG (East) and BBG (East Miner) values are coerced to be those in the year prior to override, rather than derived based on the official formulas.

Note that no overrides are available for Average Income (“Durchschnittsentgelt”).

Click the State Contributions button if any of the Benefit Definitions valued have a check in the Adjust for state pension contributions box of the Benefit Definition). The Employer State Contribution Rates dialog box allows you to enter the state pension contribution rates as a fraction (e.g., 0.025). Rates are specified separately for State pension (statutory), State pension (coal miner), Unemployment, Healthcare and Long-term care. A Look up button is provided, so that you can select contribution rates already published by Applicable Year.

U.K

In all modes, the U.K. tab allows you to override ProVal’s historical regulatory data values (if your valuation date is in a year for which data is already published) and/or add them (if your valuation date is in a year for which data is not yet published, or, if recently published, may not yet be in ProVal). Enter each value, by the Year to which it applies, in the Lower Earnings Limit (LEL) column. In U.K. Pension mode, additional columns are available if you would like to enter overrides for CPI, RPI, Section 148 Orders or Fixed Revaluation rates.