Annuity Payout - How to Calculate

Transcription

1 2015 ANNUITY PAYOUT REPORT NOVEMBER 5, 2014 Louis P. Barbarin, CPA Executive Director

2 AGENDA ITEMS The Features of the Annuity Fund A Historical Analysis of Annuity Payouts 2015 Annuity Payout

3 MMBB s Annuity Lifetime Variable Guarantee

4 ANNUITY FUND PAYOUT VALUES COMPARED TO UNIQUE VALUES $85 $ $76.23 Payout Value throughout 2014 is Unique Value and Payout Value are convergent in 2007 $72.41 Unique Value on Sep. 30, 2014 is $71.67* $45 $57.85 PAYOUT VALUE UNIQUE VALUE $40 '07' ' ' ' ' * Before mortality and other actuarial adjustments. Includes 4% advanced earnings assumption.

5 CALCULATING THE ANNUITY PAYOUT VALUE Factors Investment Performance Value of the Underlying Assets 4% Advanced Earnings Assumption Adjustment for Mortality Experience Recovery of Excess Payments

6 VALUE FOR 2014 $85 Throughout 2014, the Annuity Payout Value was, the same as it was throughout So how did we determine the 2014 value? Determining the payout value requires several steps, and we ll go through them step by step just follow the adjustments in the graph to the left.

7 VALUE FOR 2014 $85 Step 1: Investment Performance $ % As you can see, we experienced strong investment performance in the period shown, a gain of 11.13%.

8 VALUE FOR 2014 $85 Step 2: Underlying Value of Assets $68.80 $ % The payout value of exceeded the underlying value as of 9/30/2012, which was actually $ This is the amount from which to begin our calculation.

9 VALUE FOR 2014 $85 Step 2: Underlying Value of Assets $81.38 (Continued) $68.80 $ % When we apply the investment performance gain of 11.13% to the underlying unit value ($68.80), the gain relative to the existing payout value () is less than 11.13% (4.4%, specifically).

10 VALUE FOR 2014 $85 Step 3: 4% Advanced Earnings $68.80 $ % $73.52 Since you are granted a 4% advanced earnings assumption on your investment in the Annuity Fund, the future payout value must be net of that gain. As you can see, the resulting value is slightly above the existing payout value.

11 VALUE FOR 2014 $85 Step 4: Adjustment for Demographic $81.38 and Other Actuarial Assumptions - 0.1% $73.13 Adjustments were made to reflect the demographics of plan participants and other actuarial factors. $68.80 This year, an adjustment in those expectations required a $0.39 adjustment to the annuity unit value over the course of the year.

12 VALUE FOR 2014 $85 Step 5: Mortality Experience $68.80 $69.11 $ % In order to secure the Annuity Fund, we must calculate expected payout obligations based on expected lifetimes of our annuitants. If the actuarial assumptions change, we may have to make adjustments. This resulted in a $4.01 adjustment to the annuity unit value over the course of the year.

13 VALUE FOR 2014 $85 The MMBB Board of Managers takes action $68.80 Board of Managers Action $69.11 After accounting for all of the necessary adjustments to the underlying value of assets in the Annuity Fund, the result was a 5.5% decrease relative to the existing payout value. MMBB s Board of Managers felt strongly that our annuitants should not experience another decrease in their annuity payments, so they elected to infuse the Annuity Fund with $6,000,000 to offset the 5.5 % decrease and support a 2014 of payout value equal to that of 2013.

14 VALUE FOR 2015 $85 Determining the payout value requires several steps, and we ll go through them step by step just follow the adjustments in the graph to the left.

15 VALUE FOR 2015 $85 Step 1: Investment Performance $ % As you can see, we experienced strong investment performance in the period shown, a gain of 7.85%.

16 VALUE FOR 2015 $85 Step 2: Underlying Value of Assets $69.11 $ % The payout value of exceeded the underlying value as of 9/30/2013, which was actually $ This is the amount from which to begin our calculation.

17 VALUE FOR 2015 $85 $69.11 $78.98 $ % Step 2: Underlying Value of Assets (Continued) When we apply the investment performance gain of 7.85% to the underlying unit value ($69.11), the gain relative to the existing payout value ($74.54) is less than 7.85% (1.8%, specifically).

18 VALUE FOR 2015 $85 Step 3: 4% Advanced Earnings $69.11 $78.98 $ % Since you are granted a 4% advanced earnings assumption on your investment in the Annuity Fund, the future payout value must be net of that gain. As you can see, the resulting value is 2.1% below the existing payout value.

19 VALUE FOR 2015 $85 $69.11 $78.98 $ % Step 4: Current Year Mortality Experience In order to secure the Annuity Fund, we must calculate expected payout obligations based on expected lifetimes of our annuitants. If the actuarial assumptions change, we may have to make adjustments. This resulted in a $0.15 adjustment to the annuity unit value over the course of the year.

20 VALUE FOR 2015 $85 Determining a Value 6- Month Average is $72.34 Adjusted for mortality: $72.19 When we calculate the payout value on September 30 for the ensuing year, we use the higher of $69.11 $72.19 $ the unique or current value; 2. the six-month average or; 3. the guarantee. Unique value on 9/30/2014 is $71.67 Adjusted for mortality: $71.52

21 VALUE FOR 2015 $85 The MMBB Board of Managers takes action $69.11 Board of Managers Action $74.00 $72.19 MMBB s Board of Managers voted to infuse the Annuity Fund with $25,300,000 from the Special Benefits Fund to the Annuity Fund, resulting in three milestones: 1. Your annuity payment will increase, with a payout value of $74.00 per unit in New mortality assumptions have been fully implemented. 3. The gap between the underlying asset value and the payout value due to mortality experience has been financed.

22 ANNUITY FUND PAYOUT VALUES COMPARED TO UNIQUE VALUES $85 $ $76.23 Payout Value throughout 2015 will be $74.00 Unique Value and Payout Value are convergent in 2007 $72.41 Unique Value on Sep. 30, 2014 was $71.67* $45 $57.85 PAYOUT VALUE UNIQUE VALUE $40 '07' ' ' ' ' * Before mortality and other actuarial adjustments. Includes 4% advanced earnings assumption.

23 MMBB Financial Services 475 Riverside Drive, Suite 1700 New York, NY T F E service@mmbb.org