The Solvency & Windup Liability Methods topic of funding Valuation Assumptions lets you control grow-in rights and the treatment of participants who are (and are not) eligible for retirement for purposes of calculating the active solvency & windup liabilities. In short, this liability assumes immediate decrement and receipt of either retirement or termination benefits at the optimal age where the liability is the greatest. For guidance, see the applicable provincial legislation and promulgations (standards of practice, educational notes, etc.) of the Canadian Institute of Actuaries. For details about ProVal’s methodology for computing solvency & windup liabilities, see the Canadian Solvency Liability calculations Technical Reference article.

Grow-in

Grow-in rights let you include not only benefits that a member is currently eligible for, but benefits they would grow into eligibility for if they continued in active service.  A typical application of grow-in rights is for plan members employed in Ontario with at least 55 points (age + service) on the valuation date.

In addition, projected service may be used if grow-in applies (and attained service if not) in:

• Benefit Component Table lookups, depending on which lookup option is selected (for more information, see Benefit Formula Components)
• Deferral table lookups for underlying Payment Forms specified for lump sum factor Benefit Formula Components

If grow-in rights do not apply, benefit eligibility is evaluated on the valuation date. Benefits are included only if a participant is currently eligible for them on the valuation date. For example, if a participant is not eligible to retire on the valuation date, retirement benefits are not included. Also, Benefit Component Table lookups based on service may use attained service for solvency & windup liabilities depending on which lookup option is selected (for more information, see Benefit Formula Components).

If grow-in rights apply, benefit eligibility is evaluated at each projected age assuming continued service (until decrement). That is, all benefits are included as long as a participant is either currently eligible or projected to be eligible for them. For example, if a participant is not eligible to retire on the valuation date, retirement benefits will be considered at future ages where retirement eligibility is projected to be met (in addition to any termination benefits the participant is currently eligible for or projected to be eligible for). Also, Benefit Component Table lookups based on service may use projected service for solvency & windup liabilities depending on which lookup option is selected (for more information, see Benefit Formula Components). To reflect grow-in rights:

• Check the box to turn on grow-in for Transfer value and deferred annuity purchase and optionally, for Immediate annuity purchase solvency & windup liabilities.

• Specify which actives are eligible for grow-in rights by entering Age / Service / Points conditions that must be met on the valuation date in the grid labeled If at least (on valuation date). To satisfy any given row of the grid, all conditions in the row must be met (e.g., both 55 years old and 5 years of service). Use additional rows for alternative conditions; an individual is considered to have met the criteria at the earliest satisfaction of any row. Conditions are evaluated without rounding. For example, an individual 54.9 years old will not be considered to have met an age 55 condition. If you wish apply rounding, enter fractional values (e.g., 54.5 instead of 55). Alternatively, for service rounding, use a Service Definition with rounding parameters as described in the next paragraph.

The Service parameter determines how to measure service when applying service-based and points-based conditions. You may specify either a database Field or a Service Definition. If you specify a Field, you may refer to a date field from which to calculate service or to a numeric field containing the amount of service accumulated at the valuation date. If you need fractional service accruals (e.g., hours-related service) or rounding (e.g., count partial years as full years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions. Service will be anticipated to increase by one year per calendar year, or, if you have specified a Service Definition, service will be anticipated to increase according to the Service accruals parameter of the Service Definition.

In addition, you may specify a Selection expression to further narrow which actives are eligible for grow-in rights (e.g., only participants in Ontario). Alternatively, you may retrieve a Selection Expression previously saved under the Selection Expressions command of the Database menu. To retrieve a previously saved Selection Expression, click the button to access the Retrieve Selection Expression dialog box, which lists the Selection Expressions saved in the current Project. Click the name of the desired Selection Expression to return to the Optimal Value dialog box, where the Selection Expression is now entered in the expression box. Only records that meet the selection criteria of the database expression will be considered for grow-in rights. If the Selection expression is blank, all records meeting the age/service/points conditions on the valuation date are considered to have grow-in rights.

 

If eligible to retire on valuation date

For participants who are eligible for a retirement benefit on the valuation date, you can elect to:

• Assume immediate commencement if available. This lets you determine the solvency& windup liabilities as the present value of the retirement benefit on the valuation date, skipping the optimal value calculation.

If checked, participants who are eligible for a retirement benefit on the valuation date with (at least one) immediate benefit will be assumed to receive this benefit. For these participants, solvency & windup liabilities will be based solely on the retirement benefit payable at the current age. Typically, you will also want to set the eligibility for immediate annuity purchase equal to retirement eligibility so that this basis is used.

If not checked, an optimal value calculation will be done for these participants. Thus, each possible commencement age for retirement benefits is calculated and the one resulting in the largest liability is used.

• Compare to transfer value of termination benefits. Lets you use the Transfer Value of termination benefit(s) as a minimum liability for participants who are eligible to retire on the valuation date.

If checked, the optimal value will be the greater of the liability for the retirement benefit(s) and Transfer Value of the termination benefit(s). For a participant age x on the valuation date, the solvency & windup liabilities will be determined as the maximum of the retirement benefit liability and the optimal value of the termination benefit computed at ages x through 100% retirement age on a Transfer Value basis. The ages considered for the retirement benefit will be based on the whether or not “assume immediate commencement if available” discussed above was selected.

If not checked, the solvency & windup liabilities for retirement eligible participants is equal to the optimal value of the retirement benefit only.

Regardless of whether this option is checked, retirement benefits are valued using Annuity Purchase or Transfer Value assumptions depending on whether or not participants meet the age/service/points conditions entered under the Annuity Purchase Liability topic of Valuation Assumptions.

 

If not eligible to retire on valuation date

For participants who are not eligible for a retirement benefit on the valuation date, you can elect to:

• Assume immediate eligibility for a termination benefit. Lets you assume that active participants who are not currently eligible for a benefit become immediately eligible (i.e., immediately vested) for termination benefits on the valuation date.

If checked, a participant who has not met the eligibility requirements specified for any termination benefit on the valuation date will be assumed immediately eligible for the termination benefit(s) whose eligibility conditions are projected to be met first.

If not checked, no benefit will be valued for these participants and their solvency & windup liabilities will be 0.

Check for optimal value up to allows you to specify the latest age to check when doing an optimal value calculation.  You may specify one of the following choices:

• 100% retirement age - If you select this option, the last age considered for optimal value will be the age at which the participant is assumed to fully retire, using the ongoing retirement decrement assumption (with service frozen as of the valuation date if the retirement assumption is service-related). Note that this option may produce incorrect results if 100% retirement age is prior to the optimal value age.

• Constant age - This option allows you to set the last age considered for optimal value to the same constant age across all participants (for example, age 65). If the age entered is prior to the first retirement eligibility age, the latter will be used instead.  

• Age from database field - If you select this option, the last age considered for optimal value will be set to the age contained in the specified database field.  If the age is prior to the first retirement eligibility age, the latter will be used instead.