Defining Early and Late Retirement Factors

This chapter provides an overview of early and late retirement factors and discusses how to:

• Use early and late results.

• Use QDRO with early and late adjustments.

Understanding Early and Late Retirement Factors

Early retirement often carries a reduced benefit. Similarly, late retirement benefits can be increased. Use the early and late retirement factors function to derive the factor that adjusts retirement benefits for early or late commencement. You choose any of several adjustment methods, including actuarial and arithmetic.

Using Early and Late Results

To make early and late retirement adjustments, use the Early/Late Adjustments (EARLY_LATE_ADJUSTM) component.

This section provides an overview of the early and late retirement factors function, lists the pages used for early and late retirements, and discusses how to:

• Define adjustments.

• Provide actuarial details.

• Provide arithmetic details.

Understanding the Early and Late Retirement Factors Function

The early and late retirement factors function result returns a single adjustment factor to be applied to the final benefit. For example, to reduce a benefit by 40 percent, use a reduction factor of 60 percent, or .6. You incorporate the adjustment factor into your benefit formula.

You also use this function to set up actuarial increase and decrease factors to apply to 415 limits. You reference these function results from your 415 limits definition.

Pages Used for Early and Late Retirements

Defining Adjustments

In the top area of the Define Adjustments page (Set Up HRMS, Product Related, Pension, Components, Early/Late Adjustments, Define Adjustments), you define the total range for the adjustment. Typically this is from the normal retirement date (NRD) to the benefit commencement date (BCD). If the BCD is before the NRD, the benefit is reduced. If the BCD is later than the NRD, the benefit is increased.

In the lower area of the page, you create one or more subadjustments and specify the adjustment method you use. These subadjustments apply to different segments within the total adjustment period. For actuarial and arithmetic methods, there are additional pages where you provide more information, including endpoints that define the segment within the total adjustment period.

It's extremely important that the subadjustment endpoints align exactly with the total adjustment period. This can be tricky with actuarial subadjustments because you use dates to define the total adjustment period and ages to define the subadjustment period. Just be extra careful as you define your aliases and pay attention to any rounding.

Options enable you to distinguish between subadjustment methods that apply only to reductions, methods that apply only to increases, and methods that apply to both. Depending on what types of subadjustments are present and whether the BCD (the to date) is earlier or later than the NRD (the from date), the system produces appropriate reduction and increase factors as shown in the following table:

Access the Define Adjustments page (Set Up HRMS, Product Related, Pension, Components, Early/Late Adjustments, Define Adjustments).

Adjustment From Date and Adjustment To Date

The Adjustment From Date and Adjustment To Date fields establish the total adjustment period and determine whether a benefit needs to be increased or reduced. If the to date is later or earlier, the benefit must be increased or reduced respectively. Because the factor depends on which date is earlier, these fields are not interchangeable. In most cases, you set the from date to normal retirement date (NRD) and the to date to benefit commencement date (BCD) or possibly the lump sum date. If you reference a plan's normal retirement date or early retirement date, be sure to use the same aliases you established. Note. Although the system lets you enter either constants or aliases, you should always use aliases. Do not set up the total adjustment based on fixed ages—say, a reduction from age 65 to age 62—because the resulting factor would simply measure that time and would thus always come up with the maximum adjustment value, regardless of the employee's actual benefit commencement date.

Decimals

This determines how many decimal places your final factor includes. The system rounds the final result to the specified number of decimal places.

Age Adjustment Detail

An early or late adjustment consists of at least one subadjustment. For arithmetic methods, one subadjustment is usually sufficient. You can use the arithmetic schedule to set up different reductions over different periods within an arithmetic subadjustment (although you could also set this up with multiple subadjustments).

You may need multiple subadjustments if you use different reduction methods over different periods. For example, you could reduce a benefit by .5 percent per month between age 65 and 60, and actuarially for periods earlier than age 60. Each range makes up a single subadjustment.

The system matches the subadjustment periods to the overall adjustment period and adjusts only for the appropriate period of time. So you can set up a reduction from age 60 to 55; and if the employee commences benefits at age 58, the system only calculates a two-year reduction, not a five-year reduction.

See Also

Creating Table Lookup Aliases

Using Custom Statements and Spouse Eligibility Statements

Providing Actuarial Details

Any subadjustments you create on the first page appear in the scrolling region of the Actuarial Equivalence Method page. If any subadjustments use an actuarial method, this is where you provide actuarial details. If you have more than one actuarial subadjustment, be sure to enter information for each one.

Access the Actuarial Equivalence Method - Early/Late Adjustments page (Set Up HRMS, Product Related, Pension, Components, Early/Late Adjustments, Actuarial Equivalence Method).

Age Adjustment

From and To Ages for Employees and Beneficiaries.

Use the From Employee Age and To Employee Age group boxes to specify the age range to which the assumption set will be applied.

If the normal form of the benefit includes a survivor benefit, actuarial adjustments account for the beneficiary ages over the same reduction period. In this case, fill out the From Beneficiary Age and To Beneficiary Age settings as well. Otherwise, you can leave these fields blank.

Be sure to align these ages exactly with the dates that define the total adjustment period. For example, if you have a single adjustment from normal retirement date to benefit commencement date, set up the ages to be the age at normal retirement date and the age at benefit commencement date.

You usually have just one actuarial subadjustment. If you use different actuarial assumptions over different time segments, you need more than one. If you do have multiple subadjustments, be sure they do not overlap and that they still align with the total adjustment period.

Warning! Be sure your subadjustment ranges coincide with the main adjustment range you entered on the Define Adjustments page.

See Also

Using Actuarial Assumptions

Providing Arithmetic Details

If any subadjustments use an arithmetic method, use this to further define the method.

An arithmetic method involves counting the time between the dates and applying a specific factor (either a percentage or a fraction) for each period. For example, a reduction could be 5 percent for each year, or it could be 5 percent per year for five years and 2 percent per year thereafter. You could set up this second example with a single two-part subadjustment or with two separate subadjustments.

To set up arithmetic details, first determine the period of time to count, then specify the reduction for each period counted.

Access the Arithmetic Method page (Set Up HRMS, Product Related, Pension, Components, Early/Late Adjustments, Arithmetic Method).

Number of Adjustment Periods

Subject to

The total time span of all subadjustments must align exactly with the total adjustment period. If you use dates, use the same aliases that are used to define the total adjustment period.

If you use ages, make sure the time periods align. Although there are fields for constant ages (say, age 65 to age 55), you almost always need to use aliases instead in order to round the dates appropriately so that they align exactly with the total adjustment range. Using aliases that round differently or using whole ages when the plan normally adjusts the date may cause the adjustments to be inaccurate.

Rule Uses

Period Detail

Using QDRO with Early and Late Adjustments

If your company intends to calculate QDRO benefits using Pension Administration, you need to be sure your plan rules support these calculations. Although the system doesn't calculate the initial benefit (a court specifies the amount), QDRO benefits are subject to early commencement reductions. Therefore, you need to keep QDRO processing in mind as you set up your adjustment rules.

Using Aliases in QDRO Calculations

To perform calculations for QDRO alternate payees, the administrator first creates an employee ID (actually, a "non-employee" ID), for the alternate payee. This enables users to run the QDRO calculation based on the alternate payee ID.

Note. Because the calculation is based on the QDRO payee's ID, all aliases referencing employee data are resolved based on the QDRO alternate payee's data, not the original employee's data. It is extremely important to keep this in mind as you set up your plan rules.

For example, the alias BIRTH_DT would produce the alternate payee's date of birth, not the original employee's date of birth.

The alias SBIRTH_DT, which normally references an employee's spouse's birth date, is usually not valid for QDRO calculations, which do not incorporate any reference to a new spouse. If you want to reference the original employee's birth date in a QDRO calculation, use the special alias QDRO_EE_BD (QDRO employee birth date).

This is an especially useful alias for determining early and late adjustments. For example, Paul and Mary got divorced and Mary has a QDRO giving her part of Paul's pension benefit. The plan's usual early adjustment factor is a 6 percent per year reduction for each year between ages 65 and 60. When Mary elects to begin benefits, Paul is 62 and Mary is 58. Her benefit should be reduced by 18 percent because the reduction is based on Paul's age when she starts receiving payments. Therefore, the Early/Late Adjustments definition used in Mary's calculation needs to reference Paul's age. In order to get to this information, use QDRO_EE_BD.

See Also

Using QDRO Aliases

Creating QDRO-Specific Definitions

You may need to use different definitions for the original employee and the alternate payee. The difference is based not on different plan rules, but on the fact that for the employee's benefit, the original employee's own age is used, whereas for the alternate payee's benefit, the alternate payee's age is generally not used.

You handle this requirement through the system's grouping capabilities. Your function result might look like this: