Annuity Calculation Changes—September 2011

Beginning September 2011, the General Board will revise the process for announcing the annuity conversion interest factor (formerly the annuity conversion rate). Previously, the General Board determined the interest factor each month.

The annuity conversion interest factor will be calculated and posted twice annually, in September and February. For June and July retirees, this means the interest factor used in preparing their application for benefits will typically be the same factor used when their actual benefits calculations are done on their retirement dates. This change is intended to reduce the variability of expected MPP benefit payments for participants nearing retirement. Combined with the recent LifeStage Investment Management Service changes that lower investment risk as MPP participants approach retirement, we believe participants will have better information with which to make decisions. Please note that the General Board reserves the right to change the rate should extreme market conditions (such as a material increase or decrease in market interest rates) warrant.

The annuity conversion rate is one of several elements used to determine a participant’s monthly benefit payment. It is calculated by analyzing current data from a number of reliable sources rather than a single index or a pre-specified formula, and is intended to reflect current market conditions for setting insurance annuity payments. The sources used include, but are not limited to, interest rates on U.S. government-issued debt, interest rates for highly rated corporate bonds that comprise the Citigroup Pension Discount Curve, annuity rates set by the Pension Benefit Guarantee Corporation and market annuity rates quoted by insurance companies that sell annuity products. The General Board also considers the long-term expected rate of return for the assets supporting MPP annuities.

The General Board will notify participants about changes to the annuity conversion interest factor through the General Board’s website and in the October issue of Hark. If you have any questions, please contact your plan sponsor manager.

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