Defining Death Coverage Reductions

This chapter provides overviews of death coverage reductions and death coverage history and discusses how to:

Use death coverage results.
Define death coverage reductions.

Understanding Death Coverage Reductions

All qualified plans must offer employees a death benefit in case of preretirement death. The amount of the benefit depends on when the participant dies. Plans can also pass the cost of this coverage to the employee through a reduced benefit upon benefit commencement. The death coverage reduction factor is typically based on the amount of time the coverage was in effect.

Employees who don’t want to pay for the coverage can choose to waive it. Employees can also change their election over time. By recording an employee’s history of coverage elections in your PeopleSoft system, you make this information available for determining the death coverage factor.

Understanding Death Coverage History

When plans require employees to pay for their preretirement survivor annuity (PRSA) coverage, employees can waive the coverage. Employees who change their coverage election can end up with a history of covered and not covered periods.

Note. If there is no coverage history, the system assumes that the employee has never had PRSA coverage, that is, the employee waived such coverage at all times. However, the Internal Revenue Code requires plan sponsors to assume that employees are covered by PRSA benefits unless they have elected otherwise. You should, therefore, record coverage as a workflow process that initiates whenever you hire an employee or change an employee’s marital status from single to married.

The system builds a history of covered and not covered time segments based on employee elections. Two other elements can impact the coverage history: Both the employee’s group affiliation and the definition used for the employee’s group can change. When either event occurs, the coverage history begins a new segment.

The system calculates a reduction for each segment; the final reduction is the sum of all the reductions. For example, if you change your plan rules in 2000 and an employee has a 1 percent reduction for the time before 2000 and a .5 percent reduction for the time after, the final reduction is 1.5 percent and the final factor is .985.

Coverage segments don’t have fixed lengths. They are determined by dates when the coverage election changes, the plan rules change, or the employee changes group affiliation. Only segments where the employee has elected death coverage become part of the reduction calculation.

Using Death Coverage Results

The death coverage factors function returns a single adjustment factor which you typically incorporate into your benefit formula. The result is the actual factor applied to the benefit, not the reduction amount. For example, the factor would be 98 percent or .98 for a 2 percent reduction.

Defining Death Coverage Reductions

To define death coverage reductions, use the Death Coverage (DEATH_COVERAGE) component.

This section provides an overview of understanding death coverage definitions, lists the pages used to define death coverage reductions, and discusses how to:

Establish the method for calculating death coverage reduction factors.
Apply reductions.
Define a death coverage reduction fixed period.
Define a death coverage reduction schedule.

Understanding Death Coverage Definitions

If an employee changes jobs and moves in and out of plan eligibility, you don’t want to treat the period of ineligibility as a covered period. Rather than having to always record coverage changes due to plan eligibility changes, you can set up separate death coverage definitions to be used during eligible and ineligible periods where the definition for ineligible periods produces no reduction. You set this up on the Function Result page using the Definition Applies to parameters.

Pages Used to Define Death Coverage Reductions

Page Name	Object Name	Navigation	Usage
Reduction Method	PA_DEATH_ADJ_GEN	Set Up HRMS, Product Related, Pension, Components, Death Coverage, Reduction Method	Establish the method for calculating death coverage reduction factors.
Apply Reductions	PA_DEATH_ADJ_GEN2	Set Up HRMS, Product Related, Pension, Components, Death Coverage, Apply Reductions	Indicate what time period to evaluate when determining the reduction factor.
Define Fixed Period	PA_DEATH_ADJ_ARITH	Set Up HRMS, Product Related, Pension, Components, Death Coverage, Define Fixed Period	Define the fixed period to which to apply a reduction.
Define Schedule	PA_DEATH_ADJ_COV	Set Up HRMS, Product Related, Pension, Components, Death Coverage, Define Schedule	Set up an arithmetic rule.

Establishing the Method for Calculating Death Coverage Reduction Factors

Access the Reduction Method page.

Calculate Reduction Using

Arithmetic Rule

An arithmetic method involves counting the covered periods from the election history and applying a specific factor (a percentage or fraction) for each period. For example, you could reduce a benefit by .05 percent for each year of coverage or by .05 percent per year for the first five years of coverage and .04 percent per year thereafter.

Select an option in the Periods Counting Option field. There are parameters for setting the reduction rate on the Define Schedule page. Here, you only specify units for measuring the covered period of time.

Select from monthly or yearly periods.

Table Lookup

If you use a table lookup, you create a custom table for your reduction factor. Reference your custom table in the Table Lookup Name field. The table lookup returns a single factor based on the criteria you specify.

See Creating Table Lookup Aliases.

Apply Table-Defined Schedule

Subtract Result From Cumulative Reduction (Starts at 1.0)	Select this if the table returns the reduction amount—for example, .02 for a 2 percent reduction. This option starts with a factor of 1.0 and reduces it by the factor provided by the table lookup. So if the table lookup returns a .02 reduction, the system converts that to a reduction factor of .98.
Multiply Cumulative Reduction By Result	Select this if the table returns the reduction factor—for example, .98 for a 2 percent reduction.
Decimals	Select the number of decimal places for the final reduction factor. The system rounds the final result to the specified number of decimal places.

Applying Reductions

Access the Apply Reductions page.

Apply the Reduction to

In this group box, you can indicate how to apply arithmetic reductions. You can:

Evaluate the employee’s history of covered and non-covered time periods.
Ignore the coverage history and base the factor on a fixed time span, such as date of hire to event date, age 40 to event date, or event date to benefit commencement date.

Empl Coverage Election History (employee coverage election history)

The death coverage function breaks the history into covered and non-covered segments, based on coverage changes.

You can round the coverage change dates by entering a rounding option in the Effective Date Rounding field. For example, you might always round to the first of the preceding month so that you always deal in full months.

Some Fixed Period

Specify a specific length of time to use as the basis for the factor—for example, the period from age 50 to the event date. In this case, the death coverage function doesn’t break an employee’s history into segments but instead treats the period as a single segment. Therefore, if the employee’s coverage history shows that the employee is covered at any point during the defined period, the benefit is reduced as if coverage were in effect for the entire period. You set the fixed period on the Define Fixed Period page.

You can modify the fixed period by constraining it to the segments dates. To do this, select Stays Within Segment Dates. If you define the fixed period as the time starting when the employee reaches age 50 and ending at the event date, the function looks at the coverage history and adjusts the period to begin whenever coverage begins within the period. In this case, if coverage were active when the employee reached age 50, the period would begin immediately, but if the coverage commenced at age 52, the period would not start until that point.

Preserve Credit

Often the cost of coverage for an employee decreases the longer the employee maintains coverage. For example, the reduction could be .05 percent per period for the first 60 months of coverage and .04 percent per period for all subsequent periods. When an employee starts using a new reduction definition, whether because of a change in group affiliation, a new coverage election, or a change in plan rules, you can either start counting periods from zero, or you can preserve the previous history.

Between Definitions

Select this to preserve credit when the definition changes, either because of a group change or a plan rule change.

Between Coverage History Rows

Select this to preserve credit when an employee drops and then reelects coverage.

As the system counts coverage periods, it keeps separate accumulators based on each of these options. When you don’t preserve coverage, the relevant accumulator is set to zero when there is a definition or coverage history break. In the end, the larger accumulator is used.

Note. If you preserve coverage between definitions, all definitions must have this option selected.

Defining a Death Coverage Reduction Fixed Period

If, on the Apply Reductions page, you selected to apply the reduction to a fixed period, set up that period here.

Access the Define Fixed Period page.

Determine Fixed Period Length

Count Periods Between Dates or Count Periods Between Ages or User Code

Express the fixed period in terms of either dates or ages.

Enter period beginning and ending points in either the Start Date and Stop Date fields or the Start Age and Stop Age fields. You can enter a constant or an alias.

Fixed Period is Subject to

You can indicate a maximum or minimum number of periods within the fixed period. For example, you count the years between age 40 and the age at benefit commencement, but you always charge for a minimum of 60 months.

Not Applic (not applicable)

Select this if you don’t want to impose limits. Otherwise, indicate whether the limit is a minimum or maximum, and enter the limit in the Number of Periods field.

Defining a Death Coverage Reduction Schedule

If you are using an arithmetic rule for your death coverage reduction, set up the rule here.

Access the Define Schedule page.

Reduction Basis

An arithmetic reduction can be based on either employees' ages or their lengths of coverage. To give an age-based example, you could reduce a benefit by .04 percent per period from age 40 to 54, then by .03 percent per period from age 55 and up. A reduction based on length of coverage would follow a pattern such as a .04 percent per period reduction for the first 30 periods and a .03 percent per period reduction for additional periods. The period is determined by the Periods Counting Option on the Reduction Method page.

Select Length of Coverage Based or Age. Then complete either the Length of Coverage Based or Age Based group box.

In both, you can set a fraction (numerator and denominator) or a percentage depending on your Rule Uses selection.

For Length of Coverage Based, you set Over Periods to specify the periods to which each length of coverage reduction applies.

For Age Based, set the Between Age and and Age fields to specify the periods to which each age-based reduction applies.

Rule Uses

You can express the reductions as fractions, such as a 1/600 reduction per period. Select Percentages or Fractions.

Length of Coverage Based

For reductions based on length of coverage, the system applies adjustments in the order in which they appear on the page. So if you adjust by .05 percent per year for the first two years and .04 percent per year for the next three years, the .05 percent row must be before the .04 percent year. The order shown on the page is the order the function uses.