415 Present Value Calculation

[Guest Marino13]

What is the law regarding the calculation of the present value of an accrued benefit that is limited by 415(B)?

What interest rate do you use, and what mortality table?

[Guest Keith N]

Like all things, the answer is "it depends". It depends on what the document says and it depends on the date of the calculation. It also can be a very complex calculation. I think if you asked 4 actuaries to calculate it for you, you may get 4 different answers. Hopefully 3 of them would be relatively close.

My understanding is that the max lump sum benefit is based on the present value of the maximum annuity (415(B) - a whole different discussion but currently at $140,000 per YEAR for life assuming a retirement age equal to social security retirement age) using the applicable 417(e) rates, ie: GATT mortality and 30-year treasury rate. The Plan document dictates the specifics of which month's 30-year treasury is to be used.

Prior to the passage of GATT, it was based on 5% interest and a mortality table defined in the Plan Document.

[Guest Marino13]

Thanks for your help.

I have another question, totally irrelevant from the first.

If you are calculating pre-retirement survivor benefits for a surviving spouse of a participant that died prior to obtaining early retirement age, how do you value the present value of the benefit due her?

Say the value of his AB as of the earliest retirement date (7/1/2020) is $100, the equivalent value of the J&S 50% is $84, making the benefit due her $42. Would you simply multiply the $42 by an APR at her current age? Or, would you find the value of her $42/month benefit at 7/1/2020 and discount it back to her current age?

[Guest Keith N]

"APR"??

Again, it depends on the document, but from the example you described, normally you would value a deferred benefit of $42 payable 7/1/2020 - that is based on her age in 2020.

[AndyH]

Maybe I can help with the translations.

I think the last question gets to whether the lump sum is valued as an immediate annuity or a deferred annuity. I think most would value it as a deferred annuity as KeithN indicated, although some might do it differently. This is not likely to be defined specifically in the document, it's more of a "commonly accepted practice" matter.

And by APR I think he meant multiply the immediate annuity by the annuity purchase rate, which is the immediate, as opposed to deferred, method of calculating the lump sum.

And Marino, to be correct in your example, you don't multiply the "value" of the accrued benefit by the APR, you multiply the actuarially reduced benefit, or immediate annuity, by the APR, under the immediate method.

[david rigby]

If it helps to have more than one vote, I agree.