94 GAR Sex distinct Annuity Purchase Rates

[No Name]

I've input Q's for males and females into a spreadsheet that calculates annuity purchase rates. My problem is that the males don't match up with the only printout of a table (6%) I have from an independent source.

Anyone willing to post a few monthly APRs from other sources? Something like:

Male, 5%, age 55

Female, 6.5%, age 60

In case you missed the header, I'm looking for 94 GAR sex distinct APRs.

Just a few will tell me if I'm on track or off base.

If I can verify my spreadsheet works, I'll make it available online.

[Guest Doug Goelz]

Here are some sample immediate APRs (annual purchase rate based on monthly payments) at 6%

Basic 1994 GAR (1994 GAM Static table)

M 55 - 12.7062

M 60 - 11.5765

M 65 - 10.3163

F 55 - 13.6159

F 60 - 12.6251

F 65 - 11.4822

Fully generational 1994 GAR

M 55 - 13.0513

M 60 - 11.8961

M 65 - 10.5903

F 55 - 13.7775

F 60 - 12.7881

F 65 - 11.6374

[No Name]

Thank you!

One more request to anyone out there and I'll make an online link. A different rate (any will do, except zero, or course). Looks like I match up with "Static", whatever that means.

[SoCalActuary]

I recommend you studythe Society of Actuaries materials on construction of mortality tables.

In addition, you should look at the notes and explanations of the 1994 Group Annuity Reserving mortality table.

In brief, you should discover that mortality rates improve each year, and that the table constructed in a prior year will have higher mortality rates than a recent table. Actuaries use projection scales to build a mortality table for a later date, based on the observed results from a prior study. The projection scales attempt to estimate how much improvement in mortality rates has occurred/

A static table does not have any projections from the published values.

Good luck on your research.

[No Name]

SoCal,

Thanks for the edification. I know (our used to know) how to construct the tables. Just confused by the multitude of "Qs" available to construct the sex-distinct 94 GAR table, which I guess is required for the RPA calculation.

Here's a link to the spreadsheet I've created. Peregrine Pensions

Columns B and C are the APRs. We divide monthly benefits by these factors to arrive at lump sums. They can be flipped over (apr^-1) to look more familiar. I've also seen them subsequently divided by 12 (I guess if the benefit is expressed as an annual amount).

I'd be happy if anyone could verify that Code 9, 94 GAR sex distinct, is accurate.

[SoCalActuary]

http://www.irs.gov/instructions/i5500sb/ar02.html is the link to the IRS instructions for computing the RPA full funding limit. It specifies that you use the 1983 GAM table (separately for males & females) in computing the RPA current liability.

Have you seen any guidance showing a new table for RPA purposes?

[No Name]

SoCal,

Sorry. I've only got a few DBs (1 man or husband and wife). I just ship off the comp and assets to the actuary.

A long-time associate at my former place of business told me that his actuary wanted a sex-specific 94GAM to run the RPA test. He asked that I update my spreadsheet (for free, for his use).

You don't see me claiming to be an actuary. I guess something on Schedule B changed for 2004 (and 2005?) so no OBRA calcs required?

Again, I just pay. No need to know. I can get close enough to advise.

[Blinky the 3-eyed Fish]

An actuary wanted tables from a non-actuary? Doesn't that seem a bit backwards? Of course if he wanted 94 GAM to run RPA, well then this actuary needs to retire or quit, because he/she doesn't know what they are doing. I sense something missing from this whole scenario.

[Effen]

FWIW, I have been disheartened by the quality of a number of questions/comments made recently on this board. Some of the things people are asking demonstrate that they are operating in an environment without proper staff. It seems to me that a lot of people are "doing" db work w/out access to an actuary who knows (or cares about) what they are doing. I know of several firms in my city that offer db admin, but don't have an actuary. They just farm it out. They have no idea if the signing actuary knows what they are doing. They don’t even know what they don’t know. I think this does a real disservice to the clients. I have seen really horrendous work that has to be cleaned up. It's difficult to explain to the client why you need to redo the last 5 valuations because the actuary didn't know how to calculate the RPA current liability.

[SoCalActuary]

If the actuary wants information, there are resources through the Society of Actuaries and their XtBML project of actuarial tables.

In addition, there are peer groups for small actuarial firms, including the newest group

the College of Pension Actuaries. They can provide answers to questions on tables, cross-references on regulations, and discussion of techniques to comply with ERISA.

If your actuary wants more information, you should guide them to email me.

[Belgarath]

Effen - while I understand your general sentiments, I'm not sure just what a TPA is supposed to do. (And we do have an EA on staff, so I have no axe to grind here.)

But one who engages the services of an actuary ought to be able to trust that the EA is competent. I mean, even if you have an EA on staff, if the EA is incompetent and messes up work for the last 5 years, how is that any different than a TPA who subcontracts the work out to an EA? You have the same predicament.

I'm just not sure what the solution to the problem is - I don't think the general practice of farming out work to an EA is necessarily wrong - you are "hiring" an EA either way.

Now as for non-actuaries doing the work of an actuary, that is a whole different ballgame. I wouldn't dream of doing this, nor would anyone else here. Certainly I can see where this leads to problems of a magnitude too terrifying to contemplate!

[david rigby]

I will be glad to offer my services to clients of this actuary.

However, as Blinky notes, it is likely some facts are not yet in evidence.

[Effen]

You are correct, having an EA on staff doesn't guarantee competence, but it does guarantee control. It creates an obligation to ensure the actuary is competent, assuming the employer wants to stay in business. If the employer doesn't care if his/her staff is competent, then they won't be around long.

Don’t get me wrong, I believe most actuaries and benefit firms are good professional firms and I’m probably preaching to the choir on the board. I’m just seeing a string of real crap actuarial work lately and it’s embarrassing for me as an actuary to explain to the client they have very serious problems because their TPA didn’t know what they were doing and the actuary was living in 1982.

There are actuaries out there who are willing sign anything put in front of them. Just like there are doctors writing scrips for valium to anyone who walks in off the street or insurance agents who selling 412(i) plans to anyone they can. Oops, that may have been a low blow; I think most doctors are clean.

Anyway, no one is forcing the TPA to do db work and if they don't care enough about their clients to hire a competent actuary and make sure it is done correctly, they shouldn't be doing it! It gives the rest of us a black eye and does a disservice to the clients.

BTW, I feel the same way about actuaries/tpa writing plan documents or selling investment products. Last time I checked, only attorneys were not authorized to practice law. Have you ever tired to get a document provider to answer a technical question about their document? You expect the TPA to know how to interpret a late retirement provision without an actuary?

[Blinky the 3-eyed Fish]

BTW, I feel the same way about actuaries/tpa writing plan documents or selling investment products.

You don't think actuaries should write plan documents?

Last time I checked, only attorneys were not authorized to practice law.

Freudian slip?

[AndyH]

OK, my two cents.

Effen, if NoName knew what FYIFV meant, he might fire one at you.

Otherwise, I think you guys are being too judgemental. I see nothing wrong with non-actuaries asking questions. It is often true that non-actuaries do all the mechanical work, including calculating CL and Sched B entries for the review/signature of the actuary, whether in house or out of house, so there is nothing wrong with that. I think that condescending replies are wrong-not that that is happening now, but it often does on this board.

The quality of work/compentence of both many actuaries and many firms that farm out such work is ripe for criticism, but I don't thing that such comments should be directed at people trying to learn on this board. Learning (and a little entertainment now and then) has always been the value of these boards.

[JAY21]

Amen to Andy's comments. I've always been supportive of any honest question that is raised for learning purposes is not a dumb question. I don't think the problem is with the questions asked on the board here, just that sometimes the questionaire may not have the necessary actuarial resources available (either on-site or offsite) and that may be evident in the question, but it may not be the fault of the person asking the question, and the person asking the question is arguably learning and improving and may someday be an actuary themselves. Let's not discourage or intimidate anyone from asking honest questions here.

[Effen]

I'm not trying to be condescending and I'm not criticizing those who are searching for answers. I agree that most people are asking honest questions. It's the ones that don't know enough to know they need to search for an answer. I applaud "No name" for caring enough to know when to ask. I wasn't referring to his question as much as commenting on Blinky's original comment. (And no, I don't think actuaries should write documents.)

This board is VERY valuable to me and provides a good dialogue about many difficult issues. It does bother me when people ask things like "should I use 94 GAR to calculate RPA current liability" I mean, what kind of place are you working in if you need to ask this type of question to a bunch of anonymous people on a message board. You should be able to ask the actuary or someone else in your office. And if there isn’t anyone in the office who can answer the question, that’s pretty scary.

Luckily, this is a very good group that provides very good information.

[Blinky the 3-eyed Fish]

Interesting perspective on the document issue. If using a VS or prototype, it's not like actuaries are writing the language. Rather they are simply making choices that are appropriate for the client. Who would be better at this than the person who is most knowledgeable about the plan and about the defined benefit issues in general? Not to disparage attorneys, but with the GUST restatements, I needed to assist in every DB restatement an attorney prepared or I had to have them correct their mistakes after the fact. No exceptions.

[No Name]

It seems the eye got off the ball. I posted a spreadsheet hoping someone could verify the 94 GAR sex-distinct results (Code 9). All other results (8 other tables) have been verified for years.

This is MY spreadsheet, and I give anyone who gives a darn the rights to use it. I'm just trying to verify that Table 9 actually works.

In another vein, yes, I've had actuaries call ME with questions I would have thought I should be asking them!

When they're softballs, I'll use anyone authorized to sign. Within a few hundred, I know what the numbers should be. A good/bad day in the market makes precision look foolish.

I know many firms without an EA on staff. I know many EAs will question everything you send them. This is why you pay them. 99.99% are very diligent and unwilling to sign a B without turning over every rock. The .01 are also useful ;-}.

I've used Preston in the past. Where the heck is he. Benefitslink Anonymous?

[SoCalActuary]

I appreciate NoName's concerns about actuaries. However, I still don't know why the 1994 GAR values are so important? They are not used for full funding calculations.

[No Name]

SoCal,

That's really interesting.

Backround: I founded a company in the 80s and left late 04. Guys I left behind depend on the aforementioned spreadsheet for RPA and OBRA (I know, not this year) calcs.

I go by the old digs every once and a while to see if any account statements I need are around. On one such visit, my guy says his actuary needs a sex-specific 94GAR APR in some calc (actuary HAS the APRs, but my guy wants to do as much as possible, and he DOESN'T have the table). Exact reason for needing this, I don't know.

My website shows 20 hits on the spreadsheet. No verifications?

[flosfur]

BTW, I feel the same way about actuaries/tpa writing plan documents or selling investment products.  Last time I checked, only attorneys were not authorized to practice law.  Have you ever tired to get a document provider to answer a technical question about their document?  You expect the TPA to know how to interpret a late retirement provision without an actuary?

What makes any old attorney qualified to draft plan documents especially for the DB plans?

As one plan document provider (himself an attorney) said in a workshop, an attorney who drafts plan documents and has no experience of day to day plan administration should be forced to administer those plans to appreciate the monster he has created.

For one of the national document providers, the volume submitter DB documents are drafted by an actuary and I find their doc to be the best I have seen so far.

[SRM]

NoName,

I matched to your age 65 6% life annuity purchase rates with the 1994 GAM Static distinct tables.

BTW, I feel the same way about actuaries/tpa writing plan documents or selling investment products.  Last time I checked, only attorneys were not authorized to practice law. 

Effen,

Can you expand on your position with regard to actuaries selling investment products? I agree with you concerning the practice of law, but I think that an actuary that is also investment-licensed and investment experienced is in a unique position to determine the appropriate asset allocation for a DB Plan.

Not too many brokers understand why a plan with benefits near the 415 limit and participants at retirement age shouldn't be invested to hit a home run, but an actuary would understand and can prevent asset accumulation above 415 limits and huge undesirable contributions on the flip side with appropriate asset liability modeling.

[flosfur]

I appreciate NoName's concerns about actuaries.  However, I still don't know why the 1994 GAR values are so important?  They are not used for full funding calculations.

Because this is the mortality table required to be used for determining certain Actuarial Equivalences under Section 415 and S417(e)(3).

[flosfur]

SoCal,

Thanks for the edification.  I know (our used to know) how to construct the tables.  Just confused by the multitude of "Qs" available to construct the sex-distinct 94 GAR table, which I guess is required for the RPA calculation.

Here's a link to the spreadsheet I've created.  Peregrine Pensions

Columns B and C are the APRs.  We divide monthly benefits by these factors to arrive at lump sums.  They can be flipped over (apr^-1) to look more familiar.  I've also seen them subsequently divided by 12 (I guess if the benefit is expressed as an annual amount).

I'd be happy if anyone could verify that Code 9, 94 GAR sex distinct, is accurate.

No Name - couple of observations:

qs are generally printed to 6 decimal places. Your qs are missing the 6th digit and therefore your APRs won't exactly match APRs computed by most other people.

For computations under Section 415 & Section 417(e)(3) (lump sums and certain other equivalence) you must use gender neutral tables published by the IRS. For gender neutral GAR 94's qs, see Reveune Ruling 2001-62.

Using sex distinct tables for computing lump sums under qualified plans have not been permitted for many many years ago.

For mortality tables to be used for RPA '94 liability calcs, see Rev. Ruling 95-28.

[flosfur]

.... including the newest group the College of Pension Actuaries. ....

SoCal - where is this group? Do they have a website?

[Blinky the 3-eyed Fish]

They are located in the highest peaks of the thick jungle mountains of Borneo where most men dare not tread.

[Guest Doug Goelz]

Wow, this post really got off track.

As flosfur mentioned, mortality rates typically carry six significant digits. Having said that, I think your purchase rates are pretty close.

A couple comments:

Do you use the rates in column T of your spreadsheet? If these are supposed to be joint and contingent purchase rates, I do not agree with your results.

Be careful with your mortality table terminology. Rev Rul 2001-62 used poor terminology. The rates contained in that revenue ruling were based on a 50/50 male/female blend of projected UP-94 rates (projected with Scale AA for 8 years from 1994 to 2002). The UP-94 table is the same as the 1994 GAM table except for a load added to the 1994 GAM mortality rates to make it acceptable for insurance reserving.

When generational mortality improvement is used with the 1994 GAM table, the standard naming convention is to call it the 1994 GAR (Group Annuity Reserving). When no generational improvement is used with it, the standard naming convention is to call it the 1994 GAM Static table (since no projection of mortality rates is involved).

Unfurtunately, when the IRS issued 2001-62, they did not follow the standard naming convention and called their unisex table the 1994 GAR. As a result of this, many people mistake what the real 1994 GAR rates are supposed to be.

[Guest Doug Goelz]

Sorry, I looked at your sheet a few more minutes, and I see that column T values are joint-life rates -- and that your joint and contingent rates are in column U. For the 50% joint and contingent option, I agree with those rates for a 65/65 combination.

[flosfur]

.... I know of several firms in my city that offer db admin, but don't have an actuary.  They just farm it out.  They have no idea if the signing actuary knows what they are doing.  They don’t even know what they don’t know.  I think this does a real disservice to the clients.  I have seen really horrendous work that has to be cleaned up.  It's difficult to explain to the client why you need to redo the last 5 valuations because the actuary didn't know how to calculate the RPA current liability.

So when people take their car to (i.e. farm it out to) the mechanic, do they know exactly how and what the mechanic is doing?

We all hire experts all the time including experts hiring other experts. Auto shops (including dealers) farm out transmission, engine rebuilding and body work. Dcotors send their patients to other specialists; surgeons, cardiologists & so on. And who has not heard of surgeons amputating the wrong leg or foot. So should the doctor (or better yet the patient) perform the surgeries himself!

As to the quality of the in-house actuary being superior and the business owner having a better idea of what the actuary knows and is doing, I would disagree. Anyway, if the business owner was that knowledgeable, why would he hire the actuary? If he does have some knowledge then he is more apt to dictate to the actuary how to do his job and that's not a desirable situation!

[No Name]

Doug,

Appreciate it a lot. Got my Q's from a link provided on this board a few weeks ago. I was bummed that I only got 5 decimal places, but such is life. I'll look up your cites and see if I can right the boat.

[Effen]

Now I know what it must feel like to be bipolar. Two conversations in one thread. I apologize for starting the 2nd, but I like the dialogue.

SRM:

I think that an actuary that is also investment-licensed and investment experienced is in a unique position to determine the appropriate asset allocation for a DB Plan.

I definitely agree with this statement. I was referring to those who were not investment licensed.

You all make good points. I just think sometimes some benefit professionals try to offer more services than they are really qualified. Too often we are tempted to do things because we can, without thinking if we should.

Obviously, an actuary is a critical part of the plan design and document drafting process, but there is a big difference between assisting and writing. I feel I know the Regs as well as the attorney's I work with, I wouldn't work with them if they didn't and they wouldn't work with me if I didn't. But, if I come up with some crazy design that pushes the envelope, I want to make sure I have a good ERISA attorney reviewing it and defending it if challenged.

I have seen major banking institutions who want assets so bad they offer the Plan Documents for free. The client doesn't know any better so the big bank puts them on to a prototype that they bought from the big prototype provider. You explain that it doesn't fit, so they tweak it so that the round peg fits the square hole. Then you get a late retirement; find the prototype language is so bad that whole lines of text are missing, so you call the big bank to ask for an interpretation of "their" document. They are clueless and pass you on to the prototype provider who promises to check into it when the big guy returns next week. This goes on for 2 years.

Personally, I think it was wrong for the big bank to offer to do the documents. They do it because they think it will help get the assets. The prototype provider doesn't care, he's just selling a document. If the big bank would focus on what they do and get better investment returns, they wouldn't have to offer services they aren't qualified to provide. Some Actuaries/TPA's do the same thing. They think they need to provide the documents in order to get the business. Some do a fine job with the documents, but some are a real piece of crap. Just cause you can buy a prototype document doesn't mean you should put all your clients on it. This type of situation was at the core of my statement.

I will now dismount from my soapbox.

[No Name]

Get back up, Effen, you're doing fine.

I know a lot about investments, but wouldn't (couldn't) have lasted 24 years giving investment advice.

How many of you fine folks have had a potential client walk in the door with 4 or 5 signed prototypes, one from each investment house? They think they have 5 Plans. Maybe they do. What do I know. Hope they file 5 5500s ;-}.