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Updating an Asset & Funding Policy

The parameters of the Asset & Funding Policy for the first valuation performed in ProVal must be input by hand. For succeeding valuations, you may update your existing prior year Asset & Funding Policy for use in the current year’s valuation without inputting last year’s amortization schedules and some other parameter values by hand. For example, in the U.S. qualified mode, if the Asset & Funding Policy for a multiemployer plan’s 1/1/2012 valuation contains amortization bases as of 1/1/2012, you can use ProVal’s update feature to prepare an Asset & Funding Policy for the 1/1/2013 valuation so that the outstanding balance of each amortization base will be as of 1/1/2013. To do so, click the Update button of an existing Asset & Funding Policy library entry, to access the Update Amortization Bases dialog box,

The Copy amortization schedules from Valuation Set parameter can be used to furnish the prior year’s amortization bases and installments, as of the prior valuation date, as the starting point. The list of available Valuation Sets will contain the names of only those Valuation Sets saved in the current Project and, in the U.S. qualified mode, executed under the same applicable law as specified by the Applicable law parameter of your Asset & Funding Policy. Select the Valuation Set corresponding to last year’s valuation and utilizing this, prior year, Asset & Funding Policy that you wish to update. ProVal reruns the Valuation Set (but will not replace the saved Valuation Set run) and displays processing messages: elapsed time to complete the Valuation Set, the Valuation Set warnings (if any), and two messages about amortization schedules. The first message indicates that the amortization schedules as of the prior valuation date have been copied from the Valuation Set results into this Asset & Funding Policy; the message displays the name of the underlying Valuation Set, the prior Valuation Date and the date the Valuation Set was created. The second message lists the type(s) of schedule(s) replaced (if any), which depends on the

  1. ProVal mode of operation and, in the U.S. qualified mode, on the selection of applicable law,

  2. whether the underlying Valuation Set includes funding or accounting Valuations and

  3. the Contribution Policy selected (under the Contribution Policy topic).

Note that, for GASB 67/68 and 74/75 the current year asset gain/loss and the current year liability gain/loss are calculated at the end of the year in accordance with GASB Implementation Guide 2015-1 question 5.142.6 and only available in a forecast (not a valuation set). Therefore, when updating a GASB 67/68 or 74/75 valuation set, the current year asset and liability gains/losses will need to be input manually.

This list indicates the types of schedules ProVal may update:

Mode Applicable Law (U.S. qualified funding valuations only) Funding Valuation Accounting Valuation
U.S. Qualified Pre-PPA, Pre-PPA and PPA, Multiemployer ERISA Minimum Funding amortization bases Accounting Transition / Prior Service Costs
  Pre-PPA, Pre-PPA and PPA, Multiemployer ERISA Maximum Contribution amortization bases  
  Pre-PPA, Pre-PPA and PPA Additional Funding Requirement liabilities  
  Pre-PPA, Pre-PPA and PPA Unpredictable Contingent Event Benefit amortizations (estimated)  
  Pre-PPA, Pre-PPA and PPA Unpredictable Contingent Event Benefit expected cash flow  
  PPA Minimum Funding amortization installments  
  All Funding Supplemental Cost amortization bases  
Universal   Funding Supplemental Cost amortization bases Accounting Transition / Prior Service Costs
U.S. public   Funding Supplemental Cost amortization bases GASB 67/68 Deferred Outflows & Inflows
Canadian Registered   Canadian Minimum Funding amortization bases Accounting Transition / Prior Service Costs
    Funding Supplemental Cost amortization bases  
OPEB   Funding Supplemental Cost amortization bases Accounting Transition / Prior Service Costs
      GASB 74/75 Deferred Outflows & Inflows
German   Funding Supplemental Cost amortization bases  
U.K.   Funding Supplemental Cost amortization bases  

After the amortization schedule messages, ProVal may also display warnings about situations that may cause an error when the roll forward is attempted, for example, a discrepancy between funding schedule dates and the Valuation Date or between the accounting schedule date and the Measurement Date.

Note that when ProVal copies the amortization schedules, any bases established (as of the prior valuation date) during Valuation Set execution, such as an experience gain or loss, a new shortfall amortization base (U.S. qualified mode) and/or an included Event, and any revised amortization payment amounts (for example, revised because of a change in the valuation interest rate assumption) are reflected.

When you click OK, ProVal fills in some or all of the other parameters in the Update Amortization Bases dialog box. These parameters depend on the ProVal mode of operation and, in the U.S. qualified mode, on the selected applicable law. They are grouped under the heading Roll forward amortization schedules one year, except for the U.S. qualified mode “PPA” law selection, where the heading is NC + SC Contribution Policy roll forward parameters (because they are used only if the setting of the Contribution Policy parameter is the “Normal Cost + Supplemental Cost” option).

At this point, you may wish to exit the Update Amortization Bases dialog box and examine the schedules ProVal has copied. You may then reenter the dialog box (by clicking the Update button) and complete the update (by clicking the Roll Forward button), as discussed below.

In all modes, ProVal fills in the interest rate value(s) that will, or may, be used to roll the amortization schedules forward one year. Except for the “PPA” law selection in the U.S. qualified mode, ProVal takes this rate from the Interest Rates topic of the Valuation Assumptions used for the Valuation(s) included in the selected Valuation Set and enters it as the value of the Valuation interest rate parameter. If interest rates that vary by calendar year have been specified, ProVal enters the rate for the calendar year of the Valuation Date. Under the “PPA” law selection, there are two interest rate parameters that ProVal fills in, but they are used only if the setting of the Contribution Policy parameter is the “Normal Cost + Supplemental Cost” option; they are therefore inaccessible unless you have selected this Contribution Policy. The parameters are:

You may, however, enter a different interest rate for any of these parameters, instead of accepting what ProVal copies from the Valuation Set. Enter rates as decimal numbers, not as percentages.

In the U.S. qualified mode for law selections other than “PPA”, there are additional parameters that ProVal will, or may, fill in if you copy from a Valuation Set, but whose values you may input by hand – and must input by hand if you do not copy from a Valuation Set. These parameters are discussed below, in a separate section of this article.

If you do not copy from a Valuation Set, ProVal will use the amortization schedules (see the chart shown near the beginning of this article) of the relevant topics of this Asset & Funding Policy as starting points to roll schedules forward at the appropriate interest rates. (Note that, depending on the mode of operation, supplemental cost amortization bases may be defined under either the Contribution Policy topic or a separate funding amortization bases topic.) ProVal will simply roll last year’s existing bases forward; it will not be able to establish any bases that were new last year and are not in the Asset & Funding Policy, e.g., an experience gain or loss or (U.S. qualified mode) a new shortfall amortization base established last year. To do so, you must copy from a Valuation Set.

When ProVal copies from the Valuation Set, it puts a check in the Update available parameters to next year box and intends to roll forward funding (U.S. qualified mode only) and accounting parameters (such as those mentioned in the first paragraph of this article) whose values are needed as of the prior valuation date in order to perform the current year’s valuation. ProVal will update these parameters based on information copied from the Valuation Set for the prior year. Values in this Asset & Funding Policy as of the valuation date two years ago are thus rolled forward to the prior valuation date, to be in place for the current year valuation. The accounting parameters that can be updated are the prior year expense values, prepaid (accrued) benefit cost or net amount recognized beginning of prior year and the PVAB as of prior year, all found under the Prior Year Values topic. The funding parameters that can be updated are as follows:

Parameter Topic location
“PPA” applicable law: eligibilities for applying credit balances against MRC and waive balances (benefit restriction) transition rule, non-HCE annuity purchases Credit Balances and Waivers
“PPA” law: eligibility for new shortfall transition rule, acceleration relief schedules Shortfall Amortization
“PPA” law: prior year attainment percentages, plan’s at-risk status in prior 4 years At-Risk Status
“PPA” law: boxes to reflect MAP-21 and Bipartisan Budget Act provisions will be checked if you choose to update parameters PBGC Premium and Administrative Expenses
“PPA” law: prior year effective interest rate Prior Year Values
Applicable law settings except “Multiemployer”: quarterly contributions prior year values Prior Year Values
Applicable law settings except “PPA”: funding standard account credit balance and accumulated reconciliation account balance, if a Contribution Schedule has been entered under the Contribution Policy topic Initial Asset Values
“Pre-PPA” law and “Pre-PPA and PPA” law: historical gateway current liability funded ratios Additional Funding Requirements
“Pre-PPA” law and “Pre-PPA and PPA” law: PBGC variable rate premium calculation parameters, except for assumed retirement age under the ACM PBGC Premium and Administrative Expenses

Uncheck the box if you wish to leave these parameter values unchanged (as, for example, if correction of an error in last year’s valuation requires you to input by hand the parameter value to use in the current valuation). Note: if you do not copy from a Valuation Set, this box is inaccessible and it will be necessary to update the parameter values by hand.

When you click the Roll Forward button, ProVal rolls the amortization schedules forward and updates the available parameters (if any, and if the Update available parameters to next year box is checked). ProVal displays up to three processing messages. The first message indicates that a one year roll forward of amortization schedules to the current valuation date has been completed, using the stated interest rate(s). The second message lists the type(s) of schedule(s) updated (if any), which depends upon the ProVal mode of operation (and, in the U.S. qualified mode, upon the applicable law), whether a Valuation Set ProVal copied from includes funding or accounting Valuations and the selected Contribution Policy (see the chart shown near the beginning of this article). The third message lists any additional parameters that have been either updated for use in the current Valuation or erased. If the roll forward has been aborted (for example, because a funding schedule date is not the same as the Valuation Date or an accounting schedule date is not the same as the Measurement Date), then ProVal displays a processing message indicating the error.

U.S. Qualified Mode except “PPA” law selection

The Update Amortization Bases dialog box contains additional parameters (besides the Valuation interest rate parameter) that ProVal may copy from a Valuation Set or that you may input by hand – or must input by hand if you do not copy from a Valuation Set.

If you have not entered a contribution schedule under the Contribution Policy topic, you must enter the total amount of Employer contribution (with interest at valuation rate to end of plan year) that was paid for the prior plan year. (Remember to include any Additional Contribution specified under the Contribution Policy topic, if it was paid in addition to the amount indicated by the selected Contribution Policy.) Note that ProVal will not adjust the amount you enter, even if it is insufficient to avoid an accumulated funding deficiency.

If you have entered a contribution schedule, ProVal computes and enters the Employer contribution (with interest at valuation rate to end of plan year) according to the schedule, ignoring any Additional Contribution you have entered under the Contribution Policy topic. ProVal increases the schedule’s contributions if necessary to equal the end-of-year statutory minimum contribution (even if the statutory minimum has not been selected as the Contribution Policy); thus, to reflect failure to meet minimum funding requirements, you must enter the employer contribution manually, in the Employer contribution (with interest at valuation rate to end of plan year) parameter’s text field. However, ProVal does not decrease the schedule’s contributions to the maximum tax deductible limit.

Note that ProVal looks up the contribution schedule from the Contribution Policy topic of the Asset & Funding Policy underlying the Valuation Set you are copying from, regardless of whether a contribution schedule is coded in the Asset & Funding Policy you are updating. Hence, for the purpose mentioned in the preceding paragraph, if your prior year valuation results were derived from a Valuation Set run without the actual dates and amounts of employer contributions specified in the underlying Asset & Funding Policy (perhaps because not all contributions had yet been made), then, generally, you should enter all contribution dates and amounts in the contribution schedule, run a Valuation Set based on this revised Asset & Funding Policy and copy from that Valuation Set. Note that, because the purpose of an Asset & Funding Policy update is to prepare, for next year, the specific Asset & Funding Policy that was used in the final Valuation Set, generally there should not be a discrepancy between the contribution schedule used by the Valuation Set and the contribution schedule currently coded in the Asset & Funding Policy.

ProVal also fills in the Normal Cost, as of the prior valuation date, calculated under the actuarial cost method used in the Valuation Set.

ProVal determines the amount of employer contribution available to reduce the unfunded accrued liability (if any), computed as the contribution amount minus the normal cost, both as of the end of the plan year, and shows this amount as the End of year contribution toward unfunded liability. If you wish to reflect precisely the amount and timing of each contribution made for the prior plan year in the determination of the unfunded accrued liability, be sure that your manual entry for the Employer contribution (with interest at valuation rate to end of plan year) parameter (discussed in a preceding paragraph) reflects interest computed according to the actual dates and amounts of employer contributions or, if you have entered a contribution schedule, that you have indicated the dates and amounts of all contributions made for the prior plan year (in the Contribution Schedule dialog box, these contributions will be displayed as applicable to the current, not the prior, plan year).

If the prior plan year employer contribution was limited by the actuarial liability (a.k.a. ERISA) full funding limitation, ProVal checks the Eliminate bases due to full funding credit box and deletes all existing amortization bases as of the current valuation date.

ProVal fills in the RPA Current Liability interest rate, as obtained from the Valuation Assumptions, to be used (in the determination of the additional funding requirement) to roll forward the unfunded old liability and any unamortized unpredictable contingent event benefit liability on the RPA’94 basis.