See also Liability Methods - Funding. Not applicable for Long Term Disability assumptions in OPEB mode. 

All modes calculate accounting liabilities based on the projected unit credit and/or the (traditional) pure unit credit cost methods, depending on the type of liability item calculated. In particular, calculation of liabilities and service cost (or normal cost) for vested benefit obligation (VBO), accumulated benefit obligation (ABO) and ASC 960 present value of benefits is based on the unit credit cost method, whereas calculation of liabilities and service cost for projected benefit obligation (PBO/APBO) is based on the projected unit credit cost method. The output variable expected benefit obligation (EBO) is simply the accounting counterpart to the funding output variable present value of future (projected) benefits (PVFB) and its value thus is independent of actuarial cost methods.

In all pension modes, the Projected Benefit Obligation (PBO) and PBO normal cost are always calculated, based upon the interest rate(s) entered under the Interest Rates topic of accounting Valuation Assumptions. These are the only accounting liabilities calculated in German mode.

In OPEB mode, the Accumulated Postretirement Benefit Obligation (APBO) and APBO normal cost is always calculated.

In the U.S. public sector pension and OPEB modes, check the Calculate Entry Age Normal box to calculate liabilities under the level % of salary variation of the entry age normal cost method, with a funding span that runs from the “funding age” (the first age for which there is a normal cost, aka entry age) to the age at which retirement rates become 100%. These liabilities are calculated in accordance with GASB 67/68 and 74/75. In public mode, if the plan includes ongoing employee contributions, the employer normal cost is determined by subtracting from the total normal cost the expected employee contribution computed under the ”Expected contributions for the year” option (see the Technical Reference article entitled Employee contribution methodology for details).

Note that the Term Cost button, found under the Liability Methods topic of a funding Valuation Assumptions set, is not available in accounting valuation assumptions because our understanding is that the term cost method is not permitted for accounting purposes.

The remaining parameters of this topic are discussed in the following sections of this article.

Vested Liability Parameters

In the U.S. qualified, universal and Canadian registered modes, check the Calculate Vested Liabilities box if you wish ProVal to calculate, for active participants, vested benefit obligation (VBO) and, in the U.S. qualified and universal modes, ASC 960 vested liability. These liabilities appear in ProVal Valuation Output as the variables “ABO (Vested Active)” and “ASC 960 (Vested Active)”.

In the U.S. public mode, check the Calculate Vested ABO liability (PBO & ABO always run) box if you wish ProVal to calculate, for active participants, vested accumulated benefit obligation, which will appear in ProVal Valuation Output as the variable “ABO (Vested Active)”.

Vested liabilities value the benefits you are "currently eligible” for, as defined in our Technical Reference article entitled “Vested liability calculation”. Therefore if you check the box to calculate vested liabilities, the Include benefits based on eligibility at parameter becomes accessible. Select the “first decrement age” option to evaluate current eligibility as of the decrement date, which is the same as the valuation date under a beginning of year decrement timing assumption and is the valuation date plus 6 months under middle of year decrement timing. Select the “valuation date” option to evaluate current eligibility as of the valuation date, regardless of decrement timing.

 

Alternative Interest Rate Parameter for Accrued Benefit Liability

In the U.S. qualified and universal pension modes, the ASC 960 Liability parameter allows you to specify, for computing ASC 960 liabilities and normal cost, a different discount rate from the one used for ASC 715 calculations. If ASC 960 calculations are based upon the same discount rate as other liability items (entered under the Interest Rates topic), then you may leave this parameter set to Use accounting interest (discount) rate. Otherwise, click Alternative basis and then enter the rate in the Interest Rate box, as a number between zero and 0.25 (not as a percentage).

 

PVFS, Valuation Salary and Valuation Number Parameters

In the U.S. public and OPEB modes, the same parameters for present value of future salaries (PVFS), Valuation Salary and Valuation Number as furnished for funding valuation assumptions are also provided for accounting valuation assumptions (including the parameter to apply a maximum compensation limit to PVFS and Valuation Salary), except that the parameter indicating the timing of salaries is named Timing for PVFS, valuation salary & number, because present value of future working lifetimes (PVFL) is not computed for accounting valuations. For details about these parameters, see the discussion under the Liability Methods - Funding topic.

 

Projected Unit Credit, Unit Credit and Attained Age Liability Methods Parameters

In the universal pension mode, check the ABO career average components disregard future indexation box to assure that unit credit calculations for career average components will disregard indexation after the valuation date, thus producing the same ABO and ABO normal cost for career average components with indexing applied (typically used for pension plans in the Netherlands) as if there were no indexation applied after the valuation date.

A box entitled PBO benefits never less than ABO benefits is available in all pension modes. Because the projected unit credit cost method generally is used to calculate projected benefit obligation (PBO) but the pure unit credit cost method is used to calculate accumulated benefit obligation (ABO), it is possible, for some plan designs, for the PBO value to be less than the ABO value. Checking this box assures that the value of projected benefits inherent in the ASC 715 PBO calculation is no less than the calculated ABO value. For most plan designs, this choice will not affect the results. When the parameter does matter, usually for cash balance plans, it avoids counterintuitive results by inflating the accrued benefit underlying the PBO calculation.

Another box, entitled PBO equal to ABO for cash balance and career average components, is available in all pension modes. Checking this box assures that the results of PBO calculations will be set equal to ABO values for cash balance and career average components if the benefits are attributed according to accrual rate proration, as selected for attribution of each Benefit Definition.

Another parameter available in the pension modes specifies the PBO & ABO Attribution Service (i.e., for attribution of benefits under the unit credit and projected unit credit cost methods) when the attribution method is Linear Proration to Decrement or Linear Proration to age x, as selected for attribution of each Benefit Definition.

Service for Linear Proration to Decrement or Linear Proration to age attribution may be specified by either a database Field or a Service Definition. If a field is used, it may be either a service start date or a numeric field containing service as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current Project or, if you need fractional service attribution (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

 

Projected salary and head count in Output (U.S. public mode)

The Projected salary & headcount based on parameter allows you to set the basis (“total” or “valuation”) for Valuation output for projected salaries and projected head counts (these variables are available on the Projected Benefits tab of the Output pane and by selecting the “Projected Headcount and Benefits” category when you access output by clicking the Valuation’s View button). For details about the parameter settings, see the discussion under the Liability Methods - Funding topic.

 

Timing of Employee Contributions Parameter

In the pension modes (except German mode), for a plan with ongoing employee contributions, the Timing assumed for employee contributions parameter allows you to select when, for purposes of calculating the offset to (total) normal cost to produce the employer normal cost, employee contributions are assumed to be paid. For details about these parameters, see the discussion under the Liability Methods - Funding topic and see also Employee contribution methodology for calculation details.

 

Universal Pension Mode Parameter

An Interpolate results to exact age check box is available in the universal pension mode. If this box is not checked, ProVal will use the participant’s age nearest birthday on the valuation date (that is, the age on the birthday nearest the valuation date), as is done for calculations in other modes. If this box is checked, ProVal will make two passes for each participant (one pass as if the participant’s age on the valuation date were his/her age on the last birthday coincident with or preceding the valuation date, another pass as if the participant’s age on the valuation date were his/her age on the next birthday following the valuation date) and interpolate the two sets of results to the participant’s exact age on the valuation date. For details, see the Technical Reference article entitled Interpolate results to exact age.