What Is the Accrued Benefit

[Andy the Actuary]

(1) The Plan defines the Normal Retirement Benefit as 1% x FASNRD x Min (svcnrd, 25).

(2) The Plan defines the Accrued Benefit as (1) x svc / svcnrd where FASNRD is determined at time of determining accrued benefit rather than at NRD and svcnrd is a projected amount.

(3) The Plan provides in the early retirement section that for an employee who retires from active service after age 55 and 10 years of service calculate the early retirement benefit as the amount computed under (1) with svcnrd determined as svc and FASNRD is determined at the time for determining the accrued benefit. I.e., eliminate the proration.

So, a participant is age 57 and has completed 12 years of service, then I would consider his accrued benefit to be the greater of (1) and (2), which means (2).

But what about someone who is age 45? We would determine his accrued benefit in accordance with (1) but then when valuing the funding target, recalculate the benefit when we loop to age 55? Obviously, if the participant left today, formula (1) would apply. This would mean if there were no pre-retirement decrements, we would value his accrued benefit using only formula (2)?

I have been assured over the years (though not necessarily am I convinced) that the we are talking about an early retirement subsidy rather than backloading.

[SoCalActuary]

Looking at this from the perspective of routine funding rules, you make no assumption that the subsidized ER will be paid. Zero probability = zero cost.

But you also recognize that there is a risk of this benefit being paid. Unless you assign a probability, you have nothing to measure.

[Mike Preston]

But what about someone who is age 45? We would determine his accrued benefit in accordance with (1) but then when valuing the funding target, recalculate the benefit when we loop to age 55? Obviously, if the participant left today, formula (1) would apply. This would mean if there were no pre-retirement decrements, we would value his accrued benefit using only formula (2)?

Correct on all counts, including the "it isn't backloading" one.