Tag Archives: actuarial increase

Top Milliman blog posts in 2014

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

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Actuarial increases: No good deed goes unpunished

Does your defined benefit (DB) plan provide actuarial increases to participants who work beyond normal retirement age? It’s a nice gesture, but you may be in for a shock. Many people in recent years have chosen to delay their retirements because of the poor economy, and it doesn’t take long for an actuarial increase to make a modest pension benefit look like a lottery jackpot.

DB plans are required to provide an actuarial increase on the normal retirement benefit unless the participant receives a “Suspension of Benefits” notice shortly before their normal retirement date, saying that their pension payments will be “suspended” as long as they continue working. Furthermore, even if suspension notices are provided, plans must provide an actuarial increase to benefits beyond age 70½.

What’s an actuarial increase?
An actuarial increase is sort of the opposite of an early retirement factor, which reduces the benefit to compensate for it being paid over a longer timeframe. An actuarial increase compensates for the benefit being paid over a shorter time frame. For example, a $500 monthly pension starting at age 65 would be equivalent to a larger benefit starting at a later age:

As you can see, it doesn’t take long for a participant’s benefit to double or even triple—and that’s even true for frozen DB plans!

Oh, and one more thing…
Remember the 415 limit? When most plan administrators think of the 415 limit, they think of the maximum dollar amount (currently $200,000) for DB plan benefits under Internal Revenue Code section 415(b). This dollar limit rarely applies because the compensation limit (currently $250,000) usually prevents pensions from getting that high, and the dollar limit is increased for later ages. However, section 415(b) also limits a participant’s pension to 100% of average compensation, which is not increased for later ages. If actuarial increases are driving participants’ benefits upward, the 100% of pay limit could come into play, especially for long-service participants.