; FAQ 901: DB/DC Combo - NAR & MVAR calculation with J&S normalization

FAQ 901: DB/DC Combo - NAR & MVAR calculation with J&S normalization

Problem:

How are the normal accrual and most valuable accrual rates calculated when the Qualified J&S benefit at current age option is chosen?


Solution:

In general, a participant's accrual is multiplied by their normal form factor and Most Val Form Factor, and the result is divided by comp and multiplied by 100 to get the MVAR.

Following is a simple example:

Plan normal form of benefit = Life annuity
100% of males and females are assumed married (Funding \ BENFORM screen)
REA Percent to Survivor = 50% (Benefits \ DEATHBEN screen)
Testing method = Annual Accrual
Actuarial equivalence (AEQ) = 5%, GA2002U post only
Testing assumptions (T) = 8.5%, RP21C U post only
Testing age (TA) = 62

Participant:
Current age (AA) = 54
Participant assumed married to spouse of same age since no spouse DOB in participant record
Monthly Testing compensation = 10,000
DB Benefit accrual during the year = 1,000
DC Employer Contribution = 8,400


Factors:
Actuarial Equivalence (AEQ):
LA 62 = 152.1573
J&S 50% 54/54 = 187.8445

Testing (T):
LA 62 = 119.3170
J&S 50% 54/54 = 134.7789

Normal form = life annuity so Normal Form Factor = 1.00000

Most Valuable Form Factor (MVFF):
AEQ-LA62 / T-LA62 x T-J&S54 / AEQ-J&S54 x [(1 + testing interest/ (1 + AEQ interest)] ^ (TA-AA) =
152.1573 / 119.3170 x 134.7789 / 187.8445 x (1.085/1.05)^8
= 1.18943

DB Normal Accrual Rate (NAR):
Accrual / Monthly Comp x 100
1,000 / 10,000 x 100 = 10.00

Most Valuable Accrual Rate (MVAR):
Accrual x MVFF / Monthly Comp x 100
1,000 x 1.18943 / 10,000 x 100 = 11.89

DC NAR/MVAR:
DC Cont x (1 + Test i)^(TA - AA) / T-LA62 / Monthly Comp x 100
8,400 x (1.085)^8 / 119.3170 / 10,000 x 100
= 1.35

Total NAR:
= 10.00 + 1.35 = 11.35

Total MVAR:
=11.89 + 1.35 = 13.24