What is an actuarial reduction?
A-15: The actuarial adjustment required when a plan participant elects to commence pension benefits before normal retirement age. Because the participant’s benefits will commence before normal retirement age, they must be reduced based on the participant’s life expectancy and the fact that the individual will be receiving benefits over a longer period of time. Remember, under a defined benefit pension plan, a participant’s projected accrued benefit is predetermined based on a specific formula and is calculated to commence on an unreduced basis at normal retirement age. Actuarial reductions may also be required when converting a life only benefit to another form of benefit, such as a qualified joint and survivor annuity.
Related Questions
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