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#1




Annuity Conversion Factor
I'm trying to review some option factors from a prior actuary for a new client.
Is there a nice formula for 50% J&S with "popup" if the beneficiary dies before the participant? 
#2




Pop Up Formula
I usually just go back to 1st principals.
Assume: ax = life annuity to member ay = life annuity to beneficiary axy = life annuity while either is alive (a 100% JS factor) axybar = life annuity while both are alive (= ax + ay  axy) j = JS percent (could be 50, 100 or whatever) r = reduction factor for JS popup $1 = life annuity to member that will be equivalent to popup ax = r * axybar + jr * (ay  axybar) + (ax  axybar) $1 for life = $r while both are alive + jr$ while only spouse is alive + $1 while only member is alive if j = .5 then ax = r*axybar + (1/2)* r * (ay  axybar) + (axaxybar) the ax drops out so just solve for r. r = axybar/ [ axybar + (1/2) *(ay  axybar)] for 100% JS popup, r = ay/axybar (kinda cool huh!) ax is a life annuity ay is a life annuity axy is a 100% joint life annuity so ... not too hard from there. Hope that helps. 
#3




I finally got a chance to check this since my curiosity was piqued and I will probably have to explain the option in court someday: I think that Harpo had the right initial idea, but he can't spell (yes, there is money involved (principal), and he's probably referring to the rules (principles) involved), which should have warned me that something wasn't quite right: I think that he got the definitions of axy and axybar mixed up! (OK, since this forum won't support all of the pretty notation conventions ("upper 12", age subscripts, etc.) I'll have to stick with Harpo's usage and trust that no one will get too confused.)
My Life Contingencies textbook (C.W.Jordan) defines a "joint life" annuity as terminating upon the first death (i.e., it exists as long as both parties are alive), and uses the expression axy. "Joint and survivor" annuity is used for the "last survivor" function (i.e., the one that survives until the last death), and uses the expression axybar. (Yes, axybar = ax + ay  axy, and would be read as "an annuity paid as long as either is alive is equal to an annuity paid as long as one is alive plus an annuity paid as long as the other is alive minus an annuity paid as long as both are alive!") Actuarial Mathematics by Bowers, Gerber, et al, continues this convention. I hope I haven't missed a radical change in terminology and notational convention while concentrating on consulting for the past xxx years. Compounding the problem is the terminology screwup foisted upon us with ERISA: "joint and survivor" was used to describe the situation wherein a particular order of death was important when the order was originally immaterial. Jordan would use the term "contingent annuity" to describe the situation I wish would at least more properly be called the "qualified joint and survivor" annuity: a "50% joint and survivor" annuity technically reduces upon the first death no matter which it is; a "50% contingent annuity" reduces only if the first death is the beneficiary! Anyway, if we're discussing an annuity wherein the "popup" occurs only if the beneficiary dies first, then it is a special "contingent" annuity, rather than a special "joint and survivor" annuity where the "popup" would occur upon the first death no matter who it was. Properly read, Harpo's expression, r × axybar + ˝ × r × (ay  axybar) + (ax axybar), would describe the (I think) rather strange annuity wherein a reduced amount is paid as long as either party survived with 50% of that reduced amount paid if the member survives the beneficiary and the beneficiary pays the plan the reduction if (she) survives the member! (Substitute the equivalent expression, simplify it, then read the result!) I think that the proper expression for a 50% popup upon the member's death is r × axy + ˝ × r × (ay  axy) + (ax  axy) (Harpo would have been correct if he'd left off the "bar"), or (the rearragned ax + ˝ × r × ay  (1 ˝ × r) × axy. The optional form factor then depends on the plan normal form: if it is a single life annuity, then the factor can be calculated by solving for r in the equation ax = ax + ˝ × r × ay  (1  ˝ × r) × axy, so r = 2 × axy / (ay + axy). I'll leave it to the more ambitious actuaries to come up with the 10C&C normal form factor! Of course, it is entirely possible that I've made a mistake in the algebra, I would welcome editorial comments and a good proofreader! axy axybar ax ay
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#4




Fuzzy, I'm not able to review your formulas right now, but you're right about the confusing terminology.
The annuity that US pension actuaries call a "joint and survivor annuity" is generally referred to as a "joint and contingent annuity." It's my understanding that most nonpension actuaries in the US and most nonUS actuaries use the "correct" terminology, and US pension actuaries are out of step with the rest of our profession. In 20 years of pension experience, I have only seen 1 pension plan that offered a "true" joint and survivor annuity as an optional form of payment, in which the benefit is reduced on the first death.
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If I weren't out here every day battling the white man, I could spend the rest of my life reading, just satisfying my curiosity—because you can hardly mention anything I'm not curious about. — Malcolm X 
#5




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That's what I have been told. Has anyone else heard this? And no, I am not searching ERISA for it. 
#6




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#7




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I briefly looked at the Code. It defines a "qualified joint and survivor annuity" as being reduced upon the death of the participant. I do not know if there is a definition of a plain old joint and survivor annuity, i.e., without the adjective "qualified". 
#8




My point exactly, ERISA/REA uses "qualified joint and survivor annuity". When the legislators got so much of the rest of the rules technically correct, why they decided to screw up the terminology is beyond me (but understandable). The real shame is that the US pension "professionals" seem to be willing to allow the confusion to continue by allowing the common usage to drop the "qualified" clarifier.
While I'm on the soap box, how many of us are clear about using "immediate", "due", and "deferred" as proper clarifiers of "annuity"? and what about putting a frequency reference in there too? ...OK, that's enough for now...
__________________
"Don't worry about the world coming to an end today. It's already tomorrow in "We created an environment where we didn't know what we were doing, but it was legal and making profits."(Bill Sharon, chief executive of Sorms) "As soon as we solve one problem, another one appears. So let's try to keep this one going for as long as possible." (Pepper...and Salt, WSJ, 5/4/2011) 
#9




Quote:
I've worked on 100's of plans and J&S has always meant reduced upon the death of the participant. If it means reduced upon the death of either, It's been called a "TRUE J&S". One of those things that you just grow up with  so it doesn't seem strange. Alfies_Girl, I have a program that I use for popup factors  if you want to send me your assumptions, I'd be happy to shoot you a table for comparison. 
#10




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Mumble mumble mumble.
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If I weren't out here every day battling the white man, I could spend the rest of my life reading, just satisfying my curiosity—because you can hardly mention anything I'm not curious about. — Malcolm X 
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