Understanding Actuarial Factor Aliases

When you convert a pension payment from one payment form to another, you use factors to determine an actuarially equivalent amount. A factor alias calculates the factor based on:

• The actuarial assumption set.

• The two forms of payment.

• The ages of the participant and the beneficiary (because annuities are paid over the recipient's lifetime). Typically these are the ages at benefit commencement.

Use the factors that you create anywhere your plan needs them. If your cash balance plan produces a lump sum amount, but your normal form is an equivalent annuity, you might set up a lump-sum-to-annuity conversion factor to include in your benefit formula. When you determine the annuity value of an employee's contributions, you use a factor alias to perform the conversion.

You do not need to use factors when you set up your optional form sets for each plan; the optional forms of payment function handles the conversions.