Funding Target Calculation

[metsfan026]

Someone is making me think I'm crazy, so I just need to make sure that I'm correct in terms of the formula to calculate the Funding Target.

Here's what someone is telling me the formula should be:

Hypothetical Account Balance * (1+Interest Crediting Rate)^20.5/12 * (1+Interest Crediting Rate)^Years to Retirement
--------------------------------------------------------------------------
(1/1+1st Segment Rate) ^ Years to Retirement

 

My understanding is that the segment rate is determined by the # of Years to Retirement.  Also don't know where they are getting the 20.5/12.  What I thought the calculation was is:

 

Hypothetical Account BalanceBalance * (1+Interest Crediting Rate)^Years to Retirement
-------------------------------------------------------------
1+Segment Rate (dependent on the Years to Retirement) ^ Years to Retirement

 

Please tell me I'm right and that the other person is crazy

[Bri]

I'm pretty sure any reference to 20.5/12 comes from projecting a 1/1 valuation date through the 9/15 MRC due date the next year.

But has nothing to do with the FT formula itself.  You're not crazy.

[metsfan026]

1 minute ago, Bri said:

I'm pretty sure any reference to 20.5/12 comes from projecting a 1/1 valuation date through the 9/15 MRC due date the next year.

But has nothing to do with the FT formula itself.  You're not crazy.

Perfect, so the formula I put out there is the correct one?

[metsfan026]

Also, I just wanted to clarify:

1st Segment Rate - 0-5 years till retirement
2nd Segment Rate - 6-20 years till retirement
3rd Segment Rate - 21+ years till retirement

So if someone is 5 years to retirement, we would use the 1st segment rate.

Thanks again!

[Bri]

It's within 5 years from the valuation date for the first segment, so 5.000-19.999 typically get segment 2.

[metsfan026]

1 minute ago, Bri said:

It's within 5 years from the valuation date for the first segment, so 5.000-19.999 typically get segment 2.

OK, so it's:

Up to 5
5-19
20+

That accurate?