Decrement Rate Assumptions – What are They?

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Decrements are events that cause an employee to no longer be employed with you. This could include death, termination, disability, and retirement. Your OPEB valuation reflects the possibilities of each of these decrements through decrement rate assumptions. Towards the end of your report, in a section we title the “Technical Appendix”, you can find details of the decrement assumptions. They can vary by age, sex, and/or years of service.

The way in which these assumptions work is that they are applied each year. As an example, if an employee in a given year has a 0.10% mortality rate, 0.05% disability rate, and 2.00% termination rate, these are the probabilities that each decrement, respectively, will happen in this given year. The probability that the employee is still employed with you the following year would be about 97.85% (99.90% probability of not dying * 99.95% probability of not becoming disabled * 98.00% probability of not being terminated). Retirement rates would only apply if the employee is eligible to retire. As mentioned, these assumed decrement rates are applied each year. So, while we start with a full census, only a percentage are assumed to make it to retirement in which benefits are valued and included in the liability in your report.