QUESTION: I have a plan that provides, for retirement directly from active status at the normal retirement age of 65, a benefit of 1.6% of final average pay for each year of service from hire up to 25 years plus 0.75% of final average pay for each year of service in excess of 25 years up to 40 years of service. If the plan participant terminates employment before age 65, the accrued benefit is determined by multiplying the projected age 65 benefit by a fraction whose numerator is the number of years of service at decrement and whose denominator is the number of years of projected service at age 65. How do I code the accrued benefit?

ANSWER: This benefit formula, often referred to as a project and prorate step rate formula, has elements of both the varying and the project and prorate ProVal accrual rate options. You may code the benefit formula of the Benefit Definition as:

ProjBen* (SvcProrate #min 1), where the Benefit Formula Components are:

ProjBen:	final average pay times % based on projected service, and
SvcProrate:	ratio of service at decrement to projected service as of age 65.

The parameters of these two components are coded as follows:

Name:	ProjBen
Description:	FAP * % based on projected service
Component type:	Accrual definition
Accrual format:	Basis only

Basis:

projrate1 := 0.016 * (svc65 #min 25) & projrate2 := 0.0075 * [(svc65 #zminus 25) #min (40-25)] &

(projrate1 + projrate2) * (5 #fas 10)

Name:	SvcProrate
Description:	service / service projected to 65
Component type:	Accrual definition
Accrual format:	Final average [basis x (sum of rates)]

Basis:

1/svc65

Rates:

Benefit service field: DOH

Rate type: Constant: 1

The Accrual Basis Component SVC65 is coded as follows:

Name: SVC65

Description: Total projected service to age 65

Component type: Database field

Database expression: (DOB #DATEPLUS 65Y) #YEARDIF DOH

Apply increase rates to this component? No

In this example, the database fields DOB and DOH contain the participant’s birth date and hire date, respectively.

Note that the coding the database expression depends upon what fields are contained in your database. For instance, if the field NRD, containing the date age 65 will be attained, already exists on your database, then the database expression for projected service at age 65 can be coded simply as: NRD #YEARDIF DOH.