Optional form of annuity

[FAPInJax]

Discussions have been occurring regarding the proper computation of optional forms of benefit.

What is the proper method of computing the optional form of annuity in the following case:

Actuarial equivalent

Interest 6% (Pre and post)

Mortality 1994 GAR

Normal form Life annuity

Applicable interest rate 5%

Monthly benefit at 65 is 1,000

What is the monthly benefit under a 10 year certain ONLY optional form??

Thanks for any and all comments.

[SoCalActuary]

On its face, I say the 6% rate in the plan document is used.

This produces a greater benefit than the 417(e) equivalent.

[FAPInJax]

OK. The problem appears to be that installment payments (presumably any certain only annuity less than the expected lifetime of the participant?) when calculated under the actuarial equivalent assumptions which is smaller than the installment payments using 417e.

For example, using the original assumptions an APR at 65 is 130.3888.

Converting using actuarial equivalence would produce the following:

1,000 * 130.3888 / 91.1659 = 1430.24 certain only for 10 years

Converting using 417e

1,000 * 130.3888 / 95.1517 = 1370.33

Now, what happens if the interest rates are reversed. Then, the 417e determination is more valuable and would have to be paid. Therefore, the determination of the monthly benefit available to the participant would have to be illustrated using the more favorable rates????