QUESTION: My OPEB plan has a $10,000 annual cap applied to the sum of member and spouse claims, which is $10,000 (member and spouse benefits are coded in a single Benefit Definition), but total claims in the Payment Form Value report exceed $10,000 in all payment years. 80% of active plan members are assumed married. I have another OPEB plan, where all active members are assumed married (other plan provisions and assumptions are the same): for that plan, total claims are $10,000 in the year of decrement but exceed $10,000 in all years thereafter. Why?
ANSWER: This is a consequence of how coverage is displayed in the Payment Form Value sample life report, which, essentially, presents the theoretical amount of coverage (in this case, claims) if 100% of the record survived to the next payment year and, for the spouse benefit, if 100% of the member is married. The effect of survivorship and the fraction married assumption is reflected in the liability but not within the Payment Form Value.
Thus the claims amount expected to be paid does not exceed $10,000, because only a fraction of the record remains the next year and, if not all members are married, only a fraction of the surviving dependent record gets a benefit payment. The calculated liability value displayed in the relevant liability report reflects this.
Consider this example, for the provisions of your plan and 80% of active members assumed married:
Member benefit:
Spouse benefit:
In the year of decrement, 2017, the spouse coverage amount of $5,000 is not adjusted to reflect that only 80% of the record is married, but only $4,000 of the $10,000 total claims will be paid to a spouse. The member coverage amount of $6,000 includes $5,000 for the member plus $1,000 (20% of the spouse's $5,000) available from the spouse's benefit. (If all members are assumed married, 0% is available from the spouse's benefit and the member coverage is just $5,000.)
In the next year, 2018, part of the record has died (both member and spouse). What is forfeited upon death of the member is available for the spouse, and vice versa. Therefore, the spouse coverage amount is $5,000 + [$5,000 * (1 - Member Survival Discount)] = $5,000 + [$5,000 * (1 - 0.990842)] = $5,000 + $45.79 = $5,045.79. The member coverage amount is $5,000 + $1,000 + [$4,000 * (1 - Spouse Survival Discount)] = $6,000 + [$4,000 * (1 - 0.995759)] = $6,000 + $16.96 = $6,016.96.