Social security wage bases affect the calculation of covered compensation, n-year average wage bases and social security primary insurance amounts (PIAs) under both the PIA operator and the PIA calculations tool.

For calendar years through the year of the valuation date (PIA operator) or through the law year (PIA tool), ProVal obtains the social security wage bases from its historical regulatory data and any wage base overrides you have entered under the Regulatory Data topic of Valuation Assumptions (PIA operator) or the Regulatory Data topic of the PIA tool. Any wage base override you enter will not be rounded (see step 3 below). Note that overriding the National Average Wage (NAW) for any year two or more years prior to the year of the valuation date (and not overriding wage bases) will have no impact on the wage base two years later, because these wage base values (are for years only up through the valuation date and thus) are taken directly from ProVal’s historical regulatory data (i.e., are not calculated according to step 2 below).

For future years, i.e., calendar years after the year of the valuation date (PIA operator) or after the law year (PIA tool), ProVal determines the social security wage bases by applying assumed increases in National Average Wages, as specified under the Increase & Crediting Rates topic of Valuation Assumptions for the PIA operator (for experience wage bases in a forecast, the Increase & Crediting Rates topic of Projection Assumptions) or under the NAW and CPI Increase Rates topic of the PIA Calculations Tool. The steps are as follows:

1. For each year starting with the year two years prior to either the year of the valuation date (PIA operator) or the law year (PIA tool), apply the assumed increase rate to the year’s National Average Wage (NAW).

2. If the wage base for the year of the valuation date / law year is from ProVal’s historical regulatory data (including the regulatory data text file, RegWageBase.txt), the wage base for each future year is determined by the increase to the NAW two years prior, using the formula in the ** footnote below.  Note that increasing the wage base whenever the NAW two years earlier has increased reflects an assumption that the social security CPI published for December of the year of the valuation date / law year and any year thereafter will not be zero; if the prior December’s CPI is zero (as occurred for the first time at December 2009), the wage base is not increased (and thus the 2010 wage base is the same as the 2009 wage base) – whereas ProVal ignores the CPI of zero for this purpose and thus the prior December’s CPI of zero will have no impact on ProVal’s projection of the wage base to future decrement dates (i.e., zero CPIs will not be reflected).

If the wage base for the year of the valuation date / law year is an override entered by the user under the Regulatory Data topic (of Valuation Assumptions or the PIA Tool), the wage base for each future year is determined by increasing the wage base of the immediately preceding year (prior year) by the increase in the NAW two years before the prior year, that is, the formula in the ** footnote below (referencing the 1994 wage base and the 1992 NAW) is not applied. For example, if the valuation date is 1/1/2010 and you enter an override to the 2010 wage base, ProVal will directly compute the 2011 wage base as the product of the 2010 wage base and the ratio of the 2009 NAW to the 2008 NAW.

Note (especially for checking sample lives): If your National Average Wage increase rate assumption is calendar-year based (rather than a constant percentage increase assumed all years), the increase rates are applied directly to the National Average Wage in the years you specify, to derive the next year’s NAW. Any corresponding increase in the Wage Base occurs two years afterward (see the discussion in the footnotes below for our example of wage base development).

If the wage base for the year of the valuation date is from a Custom Regulatory Table (available for use with a covered compensation operator), the wage base for each future year is determined by increasing the wage base of the immediately preceding year (prior year) by the NAW increase rate of the prior year (again, the formula in the ** footnote below, referencing the 1994 wage base and the 1992 NAW, is not applied). For example, if the valuation date is 1/1/2010, ProVal will compute the 2011 wage base as the product of the 2010 wage base entered in the custom table and the NAW increase rate entered for 2010. To reflect no increase in the wage base the year following a year with a zero CPI, you must provide historical wage bases (i. e, wage bases for years through the valuation date) by use of a custom regulatory table and enter a zero NAW increase rate for years for which the CPI is (or is assumed to be) zero. Thus, for example, if the valuation date is 1/1/2010 and you wish to reflect the $106,800 wage base published for 2011 (same as 2010 wage base because the 2010 published CPI is zero) for the first future decrement year, 2011, with increasing wage bases thereafter, then specify NAW increase rates that vary by calendar year, enter 0 for 2010 and positive increase rates for years 2011 and later.

Note: the projected wage base ProVal derives for a future year is compared to the wage base of the immediately preceding year and not allowed to decrease. Thus wage bases for years after the valuation date (PIA operator) or the law year (PIA tool) are level or increasing (never decreasing).

3. Round this amount to the nearest $300; for a Custom Regulatory Table, round according to its specified rounding rule. Both valuation and (forecast) experience assumption increase rates are applied before rounding the wage base. Likewise, the increase rates specified for the PIA tool are applied before rounding. Note for covered compensation and average wage base calculations: the (separate) rounding rule applied to the result of averaging is specified under the Plan Attributes topic of the Plan Definition.

These calculations are illustrated in the following example of wage base development for the PIA operator, where the valuation date is 1/1/2003 and ProVal’s historical regulatory data through 2003 has not been overridden:

 

Calendar Year	Assumed National Average Wage increase	National Average Wage	Wage Base (unrounded)	Wage Base (rounded)
1992	n/a	22,935.42	n/a	55,500
1993	n/a	23,132.67	n/a	57,600
1994	n/a	23,753.53	n/a	60,600
1995	n/a	24,705.66	n/a	61,200
1996	n/a	25,913.90	n/a	62,700
1997	n/a	27,426.00	n/a	65,400
1998	n/a	28,861.44	n/a	68,400
1999	n/a	30,469.84	n/a	72,600
2000	n/a	32,154.82	n/a	76,200
2001	5.5%	32,921.92	n/a	80,400
2002	5.0%	34,732.63 *	n/a	84,900
2003	5.0%	36,469.26 *	n/a	87,000
2004	4.5%	38,292.72 *	91,770.61 **	91,800
2005	4.5%	40,015.89 *	96,359.13 **	96,300
2006		41,816.61 *	101,177.10 **	101,100
2007			105,730.00 **	105,600
2008			110,487.90 **	110,400

* National Average Wages are published 2 years "after the fact". In this example, the 1/1/2003 valuation date means that the last Wage Base that ProVal knows about is for 2003 and the last known National Average Wage is for 2 years prior, i.e., 2001. Therefore, NAW values for 2002 and later years must be determined, which ProVal does by applying the increase rates specified in your Valuation Assumptions and, in a forecast, in your Projection Assumptions, for 2001 and later years, to develop the NAWs for 2002 and later years. For example, for 2002, the NAW is 32,921.92 * 1.055 (2001 NAW increased by the percentage entered for 2001), which equals 34,732.63; this 2002 NAW is then used to derive the 2004 wage base.

** Because the 1/1/2003 valuation date means that the last known Wage Base is for 2003, Wage Bases for 2004 and later years must be determined. ProVal does this by applying the applicable ratio of National Average Wages (as per step 2 above) to the 1994 Wage Base to develop the unrounded Wage Bases for 2004 and later years. For example, for 2004, the Wage Base is 60,600 * (34,732.63 / 22,935.42), which equals 91,770.61. The rounded Wage Base is then 91,800.