ProVal uses exact ages in a limited number of circumstances (i.e., to evaluate eligibility requirements and age-based accrual rates). In all other cases, rounded ages are used (e.g., for table lookups). In some geographic areas, exact ages (or at least monthly ages) should be used for all purposes. Examples of differences are the following:

• Present values – Present value factors and annuity factors used in

• Liability calculations

• Insurance reserve calculations

• Decrements – If the assumed retirement age is 65 then a participant who is 64 and 1 month old is not expected to remain active on the next anniversary date.

• Service to the age when retirement rates become 100% – The benefit payable to a participant who continues working to the 100% assumed retirement age should reflect service to that age, not to the nearest valuation date.

• Cash flow – A participant who is 64 and 1 month old and who is expected to retire at 65 should have 1 month of expected payments in the valuation year. The end of a temporary period should similarly be reflected. The cash flow is needed to estimate year-end disclosure amounts.

In the universal pension mode, an option under the Liability Methods topic of Valuation Assumptions lets you Interpolate results to exact ages to address the differences above. When this option is selected, ProVal interpolates between whole ages, using the methodology outlined below. Note that this process takes place internally and does not require manipulation by the user.

Methodology:

• Determine a participant’s age last birthday, x.

• Calculate results (present values, expected benefit payments, forecasted liabilities, etc.) assuming the participant’s rounded age is x.

• Repeat, assuming participant’s rounded age is x+1. Only the rounded age changes – everything else (e.g., exact age, service, salary, etc.) remains the same.

• Interpolate between the results for (rounded) ages x and x+1.

The examples below illustrate this methodology. Examples 1 through 3 are for current inactive members. Example 4 below is for an active member.

• Example #1. Inactive member age 62.2 with immediate annuity.

• Example #2. Inactive member age 62.2 with annuity deferred to age 65.

• Example #3. Inactive member age 62.2 with annuity deferred for 3 years.

Note the subtle difference between examples #2 and #3. Example #2 is deferred to a fixed point in time (age 65) whereas example #3 is deferred for a fixed period (3 years).

• Example #4. Active member age 62.2 with 10 years of service (i.e., 62.2&10).

Note that the liabilities (AL) for 62&10 and 63&10 might have different underlying patterns of decrement, among other differences.

Interpolation is based on the member’s exact age on the valuation date. If middle of year decrements are assumed, ProVal’s standard methodology of averaging the beginning and end of year benefits will be applied (before interpolating to exact age).

Aggregate and individual results reflect interpolation; intermediate results reflecting whole ages are not available. Sample life reports include detail on the calculations at both assumed ages, as well as the interpolated values.

Note on cash flows: While cash flows for annuity payments reflect partial years of payment as a result of the interpolation, cash flows for lump sum payments are not addressed (e.g., a lump sum might be split into two payments).