U.S. qualified mode "PPA" or "PPA and CAS" law type

This topic pertains only to the “PPA” and "PPA and CAS" law selections. Under the other law selections for funding Valuation Assumptions, this topic is replaced by the Liability Methods - Funding topic.

See also Liability Methods - Accounting.

The parameters of the Liability Methodology topic pertain to:

• calculation of at-risk liabilities

• calculation of vested liabilities,

• some methodology elements of calculations under the projected unit credit and unit credit cost methods, and

• timing of employee contributions.

 

At-Risk Liabilities

The At-Risk Liability parameters are furnished so that at-risk liabilities can be produced from the same Valuation(s) or Core Projection(s) as are used for not-at-risk liabilities. (If, in rare instances, these parameters cannot model the plan provisions and at-risk assumptions completely, override Valuations or Core Projections can be selected, in a Valuation Set or forecast, for at-risk liabilities.)

If the Use most valuable optional form at each decrement age box is checked, then, for each Benefit Definition with optional payment forms, ProVal will compare the benefit from each optional form at each decrement age and apply the sum of election probabilities of all payment forms to the one that generates the largest liability value. Note that for benefits commencing at post-termination retirement age, this comparison will be done at each retirement age, not at termination age.

At-risk liabilities are computed by replacing the assumed retirement rates for decrements occurring during the ten years following the current year (i.e., the year beginning on the valuation date) with rates of 1. If the Assume 100% termination if eligible in next 10 years box is checked, ProVal also will replace assumed termination rates for decrements occurring during the ten years following the current plan year with rates of 1. This may be appropriate for plans that pay immediate lump sum benefits at termination. This replacement applies only to records whose ProVal status is “Active” or “Vested valued through active”, not to records with a “Vested” ProVal status. Therefore the “Vested valued through active” status must be used for terminated vested participants if you wish to replace the retirement and termination assumptions that apply to them for at-risk purposes.  Note: if "<rates by benefit>" are assumed for termination rates, an adjustment factor will be applied to benefits such that the total termination rate becomes 1.  The adjustment factor for each table is based on the ratio of the original rate to the total rate.

At-risk Decrement timing can be set to: 

• Same as not-at-risk to follow the same timing at each decrement age as used for not-at-risk. For example, if decrement timing is set to middle of year, then at-risk assumed retirements will occur at the middle of the year, unless they happen to correspond with the not-at-risk 100% retirement age which always occurs at the beginning of the year.
• Same as not-at-risk unless elig. at end of val. year. to force beginning of year decrement timing for the at-risk 100% retirement rate in year 2 for participants eligible to retire at the end of the valuation year.  All other at-risk decrement ages, including those in year 2 for those not eligible at the end of the valuation year, will follow the same decrement timing as not-at-risk. This option is based on a literal reading of the Reg 1.430(i)-1(c)(3)(ii)(A) which says these participants are "assumed to commence ... at the earliest retirement age ... or, if later, at the end of the current plan year". Note that IRC 430(i)(1)(B)(i) expresses the same concept in a slightly different way, saying these participants are "assumed to retire at the earliest retirement date ... but not before the end of the plan year". This timing option also applies to at-risk 100% termination if Assume 100% termination if eligible in next 10 years is checked.

The two options are equivalent if decrement timing is set to beginning of year.

 

Vested Liabilities

If the Calculate Vested Liabilities box is checked, ProVal will compute vested funding not-at-risk liability and vested funding at-risk liability.

For the Eligibility based on current service and ... age parameter, select "current" age if only benefits for which the participant has met the eligibility requirements based on age and service in the valuation year (as of the valuation date, if decrement timing is beginning of year) should be valued for vested liability purposes. That is, an early retirement subsidy, or penalty, is not vested. If "decrement" age is selected, eligibility is based on age in the decrement year, and the participant will grow into eligibility age requirements, provided the eligibility service requirements are met in the valuation year (i.e., an early retirement subsidy or penalty is vested).

The Under MOY decrements, current age and service determined at parameter is relevant only when active decrement timing is set to "middle of year". Select "BOY" to indicate that current age and service should be determined at the valuation date. Select "MOY" to indicate that current age and service should be determined six months after the valuation date, when the decrement occurs. If vested benefit eligibility is determined at decrement age (discussed in the preceding paragraph), this parameter applies only to current service, as current age is not relevant.

For details about calculating vested liabilities and the related parameters, see the Technical Reference article entitled “Vested liability calculation”.

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Projected Unit Credit and Unit Credit Liability Methods Parameters

Projected unit credit and unit credit calculations are generated automatically (no user selection of the projected unit credit or unit credit liability methods is required), as is calculation of present value of future benefits (PVFB), whereas no other liability methods are needed to produce target liabilities for the “PPA” law choice, although you may tell ProVal, under the Actuarial Liability topic, to produce additional liabilities (including liabilities under an entry age normal liability method). Therefore, the Liability Methodology topic furnishes only those liability method parameters that are relevant to providing details for projected unit credit and unit credit liabilities.

These parameters are the Benefits with expected increases (PUC) never less than without (UC), PUC equal to UC for cash balance and career average components and Reflect new accrual rates during the valuation year in liabilities check boxes and the PUC & UC Attribution Service – Linear Proration to Decrement parameters. For details about coding them, see the discussion under the Liability Methods - Funding topic.

 

Timing of Employee Contributions Parameter

For details about coding the Timing assumed for employee contributions parameter, see the discussion under the funding Liability Methods topic.