Understanding How the Transfer Benefit is Calculated
The benefit is calculated so that, over a large population, the present value of future payments will equal the amount transferred minus the one-time processing fee. Several assumptions are used to calculate that present value:
Interest Rate: Future payments are discounted using the 20 Year U.S. Treasury Constant Maturity. If the Cost-of-Living Adjustment (COLA) option is selected, the Inflation Indexed rate is used. If the No COLA option is selected, the Nominal rate is used. Current values of this index can be found at this Federal Reserve site. U.S. Treasury rates are used, as required by statute, because those are the interest rates investors can earn on securities of similar default risk.
Mortality assumption: The number of retirees and beneficiaries remaining alive to collect payments is calculated using the RP-2000 Mortality Table, projected generationally from 2003 using scale AA. Member mortality is based on 80% of the female table with no setback plus 20% of the male table, set forward one year. Beneficiary mortality is based on 20% of the female table set forward two years plus 80% of the male table set forward one year. This table has been determined to roughly match the experience of the eligible population, averaged across genders and employee types, and adjusted for an expectation that females are more likely to elect the Transfer Benefit than males. Your expected lifespan may differ from the average for a variety of reasons.
Fee: A one-time fee of $100 is subtracted from the amount you transfer before the monthly benefit is calculated. This fee is used to cover the administrative costs associated with the initial transfer. There are no ongoing fees.
Example of Benefit Amounts under the Transfer Option
The monthly benefit amounts shown below are based on interest rates from August 2010 and an estimate of the mortality table that will be selected by the Board of Trustees. Actual benefits are almost certain to differ from the amounts shown below. The chart below is provided to demonstrate the estimated size of benefits for a given amount transferred.
All of the values in the table assume the following elections:
- Three-Year Guaranteed Refund
- Maximum Option (no survivor benefit)
No Cost of Living Adjustment (COLA), Monthly Benefit:
COLA Equal to CPI, Monthly Benefit: