Defining Early and Late Retirement Adjustments
To make early and late retirement adjustments, use the Early/Late Adjustments (EARLY_LATE_ADJUSTM) component.
This topic provides an overview of the early and late retirement factors function and discusses how to define early and late factors.
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.
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Page Name |
Definition Name |
Usage |
|---|---|---|
|
PA_AGE_ADJ_GENERAL |
|
|
|
PA_AGE_ADJ_EQUIV |
Provide actuarial details. |
|
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PA_AGE_ADJ_ARITH1 |
Specify the reduction rates. |
Use the Define Adjustments page (PA_AGE_ADJ_GENERAL) to:
Indicate the time span for which you are adjusting.
Establish subadjustments that together produce the final factor.
Navigation:
This example illustrates the fields and controls on the Define Adjustments page.
Understanding Adjustments and Subadjustments
In the top area of the Define Adjustments page 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.
Adjustments
Field or Control |
Description |
|---|---|
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 (Subadjustments)
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.
Field or Control |
Description |
|---|---|
Subadjustment |
Create individual subadjustments in the scrolling region. |
Uses Method and Name |
Select from Actuarial Equivalence, Arithmetic Rules, Custom Statement, Table Lookup, and User Code to indicate the method you use to set up the factor. If you select Actuarial Equivalence, you use the next page in the component to set up your rules. If you select Arithmetic Rules, you use the following two pages in the component to set up your rules. If you select Custom Statement or Table Lookup, enter the alias for the specific statement or lookup in the Name field. Select User Code to use customized code. If you set up multiple arithmetic subadjustments, the final factor is the sum of all subadjustments. So two arithmetic subadjustments, each with a 10 percent reduction, would yield a final adjustment factor of .8, or 80 percent. (that is, a total reduction of 20 percent). For all other combinations of subadjustments, the final factor is the product of the subadjustments. So two 10 percent actuarial subadjustments would yield a final adjustment factor of .81, or 81 percent (that is, 90 percent of 90 percent, or .9 times .9). The actuarial and arithmetic rules provide additional parameters for defining the subadjustment range. This enables you to create different rules for different time segments within the total adjustment. Because the other methods do not offer parameters for defining the time segments, you should not have more than one reduction method and one increase method when you use custom statements or table lookups. |
Field or Control |
Description |
|---|---|
Applies To |
Select one of these options to indicate when to apply adjustments: Increases Only, Reductions Only, or Both. If the definition includes one or more reduction subadjustments but no increase subadjustment, then there is no adjustment when the Adjustment To Date (normally the benefit commencement date) is later than the Adjustment From Date (normally the normal retirement date). |
Decimals |
Indicate how many decimal places to include in the subadjustment factor. |
Subadjustment Applies to Reductions Only, Increases Only, or Both
The Applies To drop-down list box enables you to specify which subadjustments apply only to reductions, which apply only to increases, and which 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:
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Included Subadjustments |
To Date is Earlier (Reduction Factor) |
To Date is Later (Increase Factor) |
|---|---|---|
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Reductions only |
Decimal between zero and one |
One |
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Increases only |
One |
Decimal greater than one |
|
Both: either multiple subadjustments or a single subadjustment that applies to both reductions and increases |
Decimal between zero and one |
Decimal greater than one |
Use the Actuarial Equivalence Method page (PA_AGE_ADJ_EQUIV) to provide 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.
Navigation:
This example illustrates the fields and controls on the Actuarial Equivalence Method page.
Age Adjustment
Field or Control |
Description |
|---|---|
Actuarial Assumption Set |
An actuarial equivalence method uses actuarial assumptions to adjust the benefit to compensate for the increased or decreased number of benefit payments you make due to early or late commencement. |
Benefit Formula Name |
Because the actuarial adjustment depends on the form of payment, you also enter the benefit formula name. This is the definition, not the function result, for the benefit that is to be adjusted; therefore, you do not need to process the benefit formula function result before early and late adjustments in order to get this value. The definition specifies the normal form of the benefit. |
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.
Field or Control |
Description |
|---|---|
Age Field and Age |
Select the Age Field option to enter either a constant age or an alias for the employee or beneficiary's age. |
User Code |
Select this option to have your custom user code provide the age. |
Use the Arithmetic Method page (PA_AGE_ADJ_ARITH1) to specify the reduction rates.
Navigation:
This example illustrates the fields and controls on the Arithmetic Method page.
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.
Number of Adjustment Periods
Field or Control |
Description |
|---|---|
Period Type |
Select Count Periods Between Dates or Count Periods Between Ages to choose whether to define the adjustment time frame in terms of dates or ages. You can also use your own User Code. |
From Date and To Date |
If your period type is Count Periods Between Dates, specify the beginning and ending dates in these fields. Enter either a constant or alias. |
From Age and To Age |
If your period type is Count Periods Between Ages, specify the beginning and ending ages in these fields. Enter either a constant or alias. |
Duration |
Select either Count Month Periods or Count Year Periods to indicate how to measure the time between the dates or ages. |
Subject to
Field or Control |
Description |
|---|---|
Either, Minimum, and Maximum |
Select this to then select the minimum or maximum number of periods to count. |
Number of Periods |
Enter the number of periods to count. |
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
Field or Control |
Description |
|---|---|
Percentages or Fractions |
Select what your rule uses for your arithmetic method adjustment rates. |
Period Detail
Field or Control |
Description |
|---|---|
Percent per Period |
If the rule uses percentages, enter a percentage. For example, you can enter a reduction of 5/12 of 1 percent as .4167 percent. |
Fraction per Period and Denominator |
If the rule uses fractions, enter the fraction numerator in the Fractions per Period field, and enter the fraction denominator in the Denominator field. For example, you can enter a reduction of 5/12 of 1 percent as the fraction 1/240. |
Over Periods |
For each factor you enter, indicate how many periods use that factor. The first row in the sequence applies to the first group of periods, the second to subsequent periods, and so on. The total number of periods across all rows is the number of periods in the subadjustment time segment (up to any maximum you specified on the previous page). Adjustments are applied in the order they appear on the page. So if you adjust by 5 percent per year for the first two years and 2 percent per year for the next three years, the 5 percent row must be before the 2 percent year. The order shown on the page is the order the function will use. |