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Lifetime Income Illustration Formula


JOH
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Hi all- I was wondering if anyone knew the actual formula that is used to calculate the Lifetime Income Illustrations that are required in 2022. I know that DOL has the calculator but was wondering if some had the actual formula for both the Single and Joint, thanks

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From the fact sheet https://www.cdc.gov/mmwr/volumes/70/wr/mm7034e5.htm

  • Assumed commencement date: On what date will the annuity payments begin? Plan administrators must calculate monthly payment illustrations as if the payments begin on the last day of the benefit statement period.
  • Assumed age: How old is the participant on the annuity start date? Plan administrators must assume that a participant is age 67 on the assumed commencement, which is the Social Security full retirement age for most workers, or the participant’s actual age, if older than 67.
  • Assumed Spousal and Survivor Benefits:
    • What is the SLA benefit? Plan administrators must illustrate a Single Life Annuity, which will pay a fixed monthly amount for the life of the participant, with no survivor benefit after the participant’s death.
    • What are the QJSA spousal assumptions? Plan administrators must assume that all participants have a spouse of equal age, regardless of a participant’s actual marital status or the actual age of any spouse.
    • What is the QJSA survivor benefit? Plan administrators must use a Qualified Joint and 100% Survivor Annuity, which will pay a fixed monthly amount for the life of the participant, and the same fixed monthly amount to the surviving spouse after the participant’s death.
  • Assumed interest rate: Plan administrators must use the 10-year constant maturity Treasury rate (10-year CMT) as of the first business day of the last month of the statement period to calculate the monthly payments. The 10-year CMT approximates the rate used by the insurance industry to price immediate annuities.
  • Assumed mortality: How should life expectancy be determined? Plan administrators must use the gender neutral mortality table in section 417(e)(3)(B) of the Internal Revenue Code – the mortality table generally used to determine lump sum cash-outs from defined benefit plans. The use of gender neutral mortality tables is consistent with Arizona Governing Comm. for Tax Deferred Annuity and Deferred Compensation Plans v. Norris, 463 U.S. 1073 (1983).
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The lifetime income amount is equal to the account balance divided by the annuity purchase rate (APR).

The APR is calculated actuarially and is based on the age, survivor benefit, assumed interest rate, and assumed mortality. Your valuation software may be able to calculate the APR from these inputs. For example here is a screenshot showing the calculation of the 100% J&S factor using the 2021 417(e) table and the 10-year treasury rate as of 8/2/2021 in ASC:

image.png.a483c6942128ed7623f939c0a75cc604.png

If the participant's account balance was $100,000 as of the 8/31/2021 statement, the J&S lifetime income amount would be 100,000 / 252.208 = $396.50.

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Everybody's administrative software (DATAIR, ASC [as shown above by C. B. Zeller], etc. should have the ability to generate the factors necessary to produce the disclosures. Here is a screen shot of my program confirming the 252.208 factor.SampleLII.png.e7704def5cc6e2a42c8c961e3c95ef9d.png

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