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Social Security Level Income Option Calculation Question


Guest Paula F

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Guest Paula F

I wonder if the SSLI factor and the ERF created by our adminstrative system is are both actually ERFs (Ns over Ns). Could someone take a look at this and tell me what you think?

First of all, I have noticed that the administrative factors system creates "Social Security Level Income Option" (SSLI factor) from the same screen as actuarial "Early Retirement Factors" (ERFs).

If I calculate ERFs for unreduced benefits at age 62 using 5.78% and GAM83U, the age 60 ERF = .84475, whereas the age 60 SSLI factor = .83887 (so they are very close). For ERFs with unreduced benefits at age 62, the ERF at 62 is obviously = 1. The SSLI factor (for age 62 level income option) at age 62 = .99304, and at 62 and 1 month = 1. This makes me wonder if the SSLI factor is actually an actuarial ERF with unreduced benefits at age 62 and 1 month.

I believe the use of the SSLI factor we produce is as follows: The estimated age 62 PIA amount is $1300 and the early retirement benefit for a participant is $600 as a single life annuity at age 60. The Social Security Level Income Option at age 62 would produce an amount payable at age 62 of $1300 x .83887 +$600 - $1300 = $390.53. The amount payable from age 60 to age 62 = $1300 + $390.53 = $1690.53.

Thanks for any comments.

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Guest Keith N

If "GAM83U" means GATT - 83 GAM 50% M & 50% F, I calculated $1,698.30 from 60 to 62 & $398.17 from 62 forward. I did the calculation as follows: 600N60=XN60 + 1300 (N60-N65). N's are actually N(12).

I don't think that the ERF's used by your particular plan are relavent. I would caclulate the ER ben based on the ERF, then use the same actuarial equivelants as are used to determine every other optional form. Your Plan document should tell you what to do.

Are you using GATT because you think you should, or is that what the plan uses for actuarial equivelants. It is not very common to use a fluxuating table for actuarial equivelants. Typically they are based on a stated table and interest rate and almost never changes.

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Guest Harry O

Note that the IRS says you need to use GATT for level income options. This is because the level income benefit is not a "nondecreasing annuity" as defined in the section 417 regulations. However, a well-drafted plan will provide that the GATT factors only apply to the normal retirement benefit. This means that in most cases where there is a ER subsidy, you can go ahead and pay using the plan factors rather than GATT.

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