HomeMy WebLinkAboutLetter 3 9-10-09buckconsultants At
an Acs company A C S,
January 30, 2008
Ms. Sandra Elenberg
Pension Administrator
City of Miami GESE Retirement Trust
2901 Bridgeport Avenue
Coconut Grove, FL 33133
Reduction Factors for Spouse Beneficiaries
Dear Sandra:
In our recent review of reduction factors for optional payment forms, we compared the reductions stated
in the ordinance for a spouse beneficiary to actuarial equivalent reductions. The ordinance currently
provides for a 10% benefit reduction for Option 2 (equal payment survivor annuity) with a spouse
beneficiary and a 2% reduction for Option 3 (one-half payment survivor annuity) with a spouse
beneficiary. We based our comparison on actuarial equivalent factors derived from assumptions
underlying the actuarial valuation (8.10% interest and the 1983 Group Annuity Mortality set back one
year). For both options, we found that the reduction factors in the ordinance are generally larger than an
actuarial equivalent reduction factor.
Attached is a table of the actuarial equivalent reduction factors for a variety of member ages and spouse
ages. Factors that are less than the 10%/2% reductions currently in the ordinance are noted in red. As
you can see, unless the spouse is significantly younger than the member or the member retires at a
relatively advanced age, the current reduction factors are generally greater than actuarial equivalent
factors.
To continue with the method in the ordinance of using stated factors which do not vary by the member's
or beneficiary's ages, we tested reduction factors that were half as much as the current factors against the
actuarial equivalent factors. We found that reduction factors of 5% for Option 2 and 1% for Option 3
(both with spouse beneficiaries) produced results that are generally much closer to actuarial equivalence.
We then calculated the cost impact of adopting the 5%/1% factors using recent experience for utilization
of Options 2 and 3 and for the member's and beneficiary's age at retirement. We found that the impact of
changing to the 5%/1% reduction factors on contribution requirements is negligible.
Please call me if you have any questions or comments on this issue.
Vry truly yours,
Gry
mes J. Donofrio, FSA
rincipal
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Copy to: Micki Taylor
P:VtetirementMami GESE Retirement)?008\Correspondence\Expimadon of Sp Benef Proposed Factom.doo
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