Change to Career Average Formula Without Wearaway

[LIBOR]

On the Formula Change Date 01/01/XX -

Old Formula : (2%)(FAE)(Years of Benefit Service)

New Formula : (1%)(Career Avg. Pay)(Years of Benefit Service), to be applied Without Wearaway.

Given the above which , if any, of the following would define the Projected Benefit under the New Formula for participant A ?

1. (Accrued Benefit on Change Date) + (1%)(Average Pay Over Future Years in Career)(Years of Benefit Service After the Change Date)

OR

2. (Accrued Benefit on Change Date) + (1%)(Average Pay Over All Years in Career) ( Years of Benefit Service After the Change Date)

[SoCalActuary]

Document must be written to define benefit. However, in general, I prefer that career avg benefits be replaced with career accumulation benefits.

By this, I mean that the benefit is defined as the prior year benefit plus 1% of the current year pay. Each year, you add a new piece as the participant continues to earn service credits.

Therefore, it becomes mathematically similar to choice 1, but without the problem of maintaining the years pay history.

[Blinky the 3-eyed Fish]

Your document will have a fresh-start date as of 1/1/xx. Your document will define the benefit after the fresh-start date as well as the frozen accrued benefit. We don't have the document to be able to answer your question, although your choice #1 would be most prevalent.

SoCal, do you agree that if the compensation definitions are the same in #1 and your version, then the benefits are exactly the same?

[LIBOR]

thanks Blinky & SoCal - I agree , the document could be worded either way - what I was looking for was the most prevalent and I think you both affirmed my thinking by leaning towards formula #1.

thanks again

[SoCalActuary]

Blinky - yes the math results in the same benefits, but my experience in keeping accurate career avg pay records says to stay away. Especially for takeover plans, or when picking up the work from the prior year, it is not obvious that the old administrative records are available nor accurate.