Using Actuarial Assumptions

This chapter provides an overview of actuarial assumptions and discusses how to:

Apply actuarial assumptions.
Establish actuarial assumption sets.
Determine actuarial factors at non-integer ages.
Gather data for a plan's annual actuarial valuation.

Understanding Actuarial Assumptions

Actuarial calculations adjust benefit amounts to an equivalent amount for a different commencement date or for a different form of payment. The conversion is based on specified assumptions about mortality, interest, and payment frequency. Together these assumptions constitute an actuarial assumption set.

Applying Actuarial Assumptions

Certain pension objects use actuarial assumptions to calculate actuarial factors:

Where Actuarial Assumptions are Used	How Actuarial Assumptions are Used
Early and late retirement factors	Determines an early or late retirement factor. Actuarially-derived early and late adjustments are, in turn, incorporated into 415 limits definitions to adjust a limit for early or late commencement.
Optional forms of payment	Converts the normal form of a benefit to optional forms.
Actuarial factor alias	Determines factors for converting from one payment form to another. The factors can be used in several places. One important usage of the actuarial factor alias is within employee-paid benefit definitions, where the system uses the factor to convert the projected employee account balance to an annuity.

Establishing Actuarial Assumption Sets

To set up action and reason categories, use the Actuarial Assumptions (ACTUARIAL_FACTORS) and Mortality Rates (MORTALITY_RATES) components.

This section provides an overview of the pages used to establish actuarial assumption sets, lists pages used to establish actuarial assumption sets, and discusses how to:

Set up mortality assumptions.
Set up an interest rate assumption.
Enter payment information.
Set up mortality rates.

Understanding the Pages Used to Establish Actuarial Assumption Sets

Actuarial adjustments depend on assumptions about mortality rates, interest rates, and payment timing.

Pages Used to Establish Actuarial Assumption Sets

Page Name	Object Name	Navigation	Usage
Mortality Basis	PA_FACTORS_MORT	Set Up HRMS, Product Related, Pension, Calculation Rules, Actuarial Assumptions, Mortality Basis	Set up the mortality basis table to use and any adjustments you make.
Interest Basis	PA_FACTORS_INT	Set Up HRMS, Product Related, Pension, Calculation Rules, Actuarial Assumptions, Interest Basis	Set up an interest rate assumption.
Payment Information	PA_FACTORS_PAYMT	Set Up HRMS, Product Related, Pension, Calculation Rules, Actuarial Assumptions, Payment Information	Set up the payment timing assumptions.
Mortality Rates	PA_MORT_RATES	Set Up HRMS, Product Related, Pension, Calculation Rules, Mortality Rates, Mortality Rates	Set up the assumed death rates by age.

Setting Up Mortality Assumptions

Mortality tables include assumptions about annuitants' life expectancies. You set up the mortality tables before you establish the assumption sets.

Access the Mortality Basis page.

Employee Mortality Basis and Beneficiary Mortality Basis

An annuity provides an ongoing benefit for the life of a participant. Some payment forms also provide a continuing annuity for a beneficiary. Your actuarial assumption set must therefore have both an employee mortality basis and a beneficiary mortality basis. The parameter sets are identical, but they are applied to different individuals.

Unisex or Sex Distinct

Select Sex Distinct to use one table, and select the table name in the Table 1 / Male Tablefield.

Select Unisex to use a blend of male and female mortality tables. Then select the table names in the Table 1 / Male Table and Table 2 / Female Tablefields. In the % of Table 1 Rate field, enter a percentage that indicates the weight to assign to Table 1 in determining the final rate. For example, if you enter 75, the system computes the blended rate by adding 75 percent of the Table 1 rate and 25 percent of the Table 2 rate.

Some tables—for example, the GAR94 and the GATT_GAM83 tables, which are supplied with the system—already include blended rates.

Note. You only use sex distinct tables for reproducing historical calculations. It is currently illegal to use sex distinct mortality tables.

Age Offset

Select this option to use the mortality rate for an age which is a specified number of years older or younger than the actual age of the participant or beneficiary. Enter the number of years to adjust by, and select either Back or Forward to indicate whether the adjustment is to a younger or older age.

Age Difference Duration

This options appears only in the Beneficiary Mortality Basis group box. Enter a duration that measures the difference between the employee and beneficiary ages. This enables the system to more efficiently access the appropriate mortality information.

Note. You do not need the actual employee and beneficiary ages at this point. You put those in the definitions of the functions that use actuarial assumptions.

Setting Up an Interest Rate Assumption

An actuarial assumption set must include an interest rate assumption. This enables the calculation to consider the potential gain or loss of interest resulting from an early or late benefit commencement.

Access the Interest Basis page.

Interest Basis

Select one of the following options, and enter information in the associated field or fields.

Use Flat Rate of

Select this option to use a specified interest rate, and enter the assumed interest rate in the adjacent % field.

Use Custom Table Lookup

Select this option to use a table of interest rates. In the Table ID field, enter the name of a table lookup alias to reference the table.

Note. PeopleSoft delivers a rate table for 30-year treasury bond rates. If you use this table, you still need to set up a table lookup alias to reference it.

Use PBGC Grading Structure(use Pension Benefit Guaranty Corporation grading structure)

Select this option to use the PBGC grading structure. This grading structure applies interest over a number of years, typically from the event date to the benefit deferral date if, for example, an employee terminates at age 40 but does not receive a benefit until age 65. The PBGC grading structure includes:

An immediate interest rate after the deferral date.
An interest rate for a defined period prior to the deferred age (for example, the first seven years before the deferral date).
An interest rate for a defined period prior to that.
An interest rate for all other years back to the event date.

If you use PBGC grading, also enter information in these fields:

Table ID: Enter the name of a table lookup alias for a table that provides the “immediate rate.” The system then derives the additional rates that make up the graded structure. Normally, you reference the PBGC rate table, although theoretically you can use any rate table.
Deferred to Age: Enter the age at which the benefit is assumed to commence. You can enter either a constant age, such as age 65, or an alias, such as the benefit commencement date.
Scaled by Percentage: To scale the PBGC rates by a factor, enter an annual scaling percentage. For example, enter 120 to increase the immediate rate and any applicable deferred rates by 20 percent.

Enter 100 as the default rate.

See Looking Up PBGC Interest Rates.

Options

Select one or more of the following options, and enter information in the associated field or fields.

Discount with Interest Only

Select this option to disregard the mortality rates for employees under a certain age and instead use the interest assumptions. Specify the cutoff age in the Prior to Age field.

Include Cost of Living

Select this option if you want the assumption set to take into account an assumed cost of living adjustment (COLA).

In the Adjustment of field, enter the adjustment percentage.

In the Commencing with Age field, enter the age when you assume the adjustment is to occur.

Entering Payment Information

Access the Payment Information page.

Payments Per Year

Select the assumed number of payments per year.

Note. Most pension plans make 12 monthly payments.

Payment Timing

Select either Beginning of Period or End of Period to indicate when the period payments occur.

Setting Up Mortality Rates

When you create an actuarial assumption set you select a mortality table that specifies your mortality assumptions.

Access the Mortality Rates page.

The following mortality tables are delivered:

GA71M: Male GAM71 table
GA71F: Female GAM71 table
GA83M: Male GAM83 table
GA83F: Female GAM83 table
GATT_GAM83: The blended table using 50 percent of the GAM83 male mortality rates and 50 percent of GAM83 female mortality rates published by the IRS. As a result of the General Agreements on Tariffs and Trade (GATT), this table must now be used when actuarially increasing or reducing 415 limits and for determining the present value of lump sum payments.

Note. The 1994 Group Annuity Reserving Table, described below, has replaced the GATT_GAM83 table.
GAR94: The blended table using 50 percent of the male mortality rates and 50 percent of the female mortality rates from the 1994 Group Annuity Reserving Table projected to 2002. This table replaces the GATT_GAM83 table when actuarially increasing or reducing 415 limits and when determining the present value of lump sum payments as a result of IRS Revenue Ruling 2001-62.
UP1984: Unisex table.

Determining Actuarial Factors at Non-Integer Ages

Mortality tables include mortality assumptions for integer ages only. To determine annuity factors at non-integer ages, Pension Administration interpolates using the methodology shown in the following formula, which assumes you are deriving a monthly single life annuity for a participant at age 60.25:

Annuity factors at non-integer ages formula (example)

In a more generic format, the equation is:

Annuity factors at non-integer ages formula (generic)

Where:

n = integer representing whole years of age.
f = decimal representing partial year of age.
m = payments per year.

And:

the left side of the equation is the actuarial factor for age n+f with payment frequency m.
the numerator is the commutation function N at age n+f with payment frequency m.
the denominator is the commutation function D at age n+f.

Generating Data for a Plan's Annual Actuarial Valuation

This section provides an overview of the actuarial valuation extract, lists the page used to generate an actuarial valuation extract, and discusses how to run the actuarial valuation extract.

Understanding the Actuarial Valuation Extract

The actuarial valuation extract provides data that your actuary needs in order to perform a plan’s annual actuarial valuation. The extract generates two extract files:

The “active” extract file, which contains information for those whose benefits are still accruing.
The “inactive” extract file, which contains information for those who are owed benefits, but whose benefits are no longer accruing.

Current employees who are covered under a plan, whether or not they have begun to participate, are typically active. Terminated employees, whether receiving benefits or awaiting deferred benefits, are typically inactive.

Page Used to Generate Data for a Plan's Annual Actuarial Valuation

Page Name	Object Name	Navigation	Usage
Actuarial Valuation Extract	RUNCTL_PASAV01	Pension, Reports, Actuarial Valuation Extract, Actuarial Valuation Extract	Generate the actuarial valuation extract files that are used to perform a plan’s annual actuarial valuation.

Running the Actuarial Valuation Extract

Access the Actuarial Valuation Extract page.

Because the actuarial valuation extract uses pension status codes, do not run the extract until you finish the periodic processing and payment processes for the year you are processing. These two processes change status codes, and you want to be sure all the status codes are current before you run the extract.

Report Parameters

To run the extract, enter the following parameters:

Plan	Select the plan for which you are running the extract.
As Of Date	Enter the date to establish the current year valuation category.
Prior Actuarial Valuation Date	Enter the date to establish the prior year valuation category. The current year and prior year dates are used to determine the extract files in which an employee is included: the active extract, inactive extract, or both.
Benefit Service Functn Result, Vesting Service Functn Result, Cons Earnings Functn Result, Cons Hours Functn Result, and Account Balance Functn Result (benefit service function result, vesting service function result, cons earnings function result, cons hours function result, account balance function result)	Use these fields to direct the extract to the correct source of plan information that the actuary needs to see for each employee. Note. Account balances apply only to cash balance accounts.