Valuation Assumptions
Valuation Assumptions are divided into two types: funding and accounting. In the German pension mode, funding assumptions are referred to as “tax/funding”. Use funding assumptions to generate liabilities and normal costs for determining contributions to the plan, including Teilwert liability in German mode; use accounting assumptions to generate liabilities and normal costs to determine accounting expense. Funding and accounting Valuation Assumptions are stored as separate entries in the Valuation Assumptions library. However, funding and accounting Valuations and Core Projections can be executed simultaneously in a single Valuation or Core Projection.
Accounting assumptions are similar to funding assumptions. If you edit a set of funding assumptions, for example, and switch the type to accounting, then all of the responses to the overlapping questions (and only those responses) will be retained.
Name is a descriptive phrase to use when saving this set of Valuation Assumptions.
Assumption Type, Funding or Accounting, determines the topics that will be a part of this set of Valuation Assumptions:
Select the funding type to determine liabilities for plan contributions (e.g., for purposes of ERISA, and other federal legislation, in the U.S. qualified pension mode). In the U.S. qualified mode, funding assumptions deal with liability topics that include current liability, Pension Benefit Guaranty Corporation (PBGC) variable premium liability and target liabilities under the Pension Protection Act of 2006 (PPA). In the Canadian registered pension mode, funding assumptions deal with liability topics that include solvency liability. In German mode, tax/funding assumptions deal with topics that include Teilwert liability calculations. In U.K. mode, funding assumptions deal with topics that include the Pension Protection Fund (PPF) liability. Select the funding type also to determine GASB expense in the OPEB and U.S. public modes.
Select the accounting type to determine accounting liabilities in accordance with published standards (e.g., ASC 715, ASC 960 and/or CICA 3462). Usually these are liabilities for plan sponsor financial statement reporting and deal with benefit obligation topics.
For Funding assumption sets in the U.S. qualified mode, ProVal needs to know whether, and how, to reflect PPA. Therefore, select the Applicable law:
| Multiemployer | for multiemployer plans (as defined under ERISA) |
| PPA | for single-employer plans (as defined under ERISA), to apply PPA only |
| Pre-PPA | for single-employer plans, to apply the law as in effect prior to PPA only |
| Pre-PPA and PPA | for single-employer plan forecasts, to apply both PPA and the law as in effect prior to PPA, with the transition occurring at the effective date you indicate for PPA |
Note: The Valuation(s) (or, in a forecast, Core Projection(s)) referencing this set of Valuation Assumptions must produce the necessary liabilities for later completion of a Valuation Set (or Deterministic Forecast or Stochastic Forecast) containing the Valuation(s) (or Core Projection(s)). Therefore, be sure that your choice of Applicable law will support the calculations needed by the Valuation Set (or forecast) that you will execute later on. In a forecast, if your Valuation Assumptions set is “Pre- PPA and PPA”, both Pre-PPA and PPA liabilities will be produced for all valuations, regardless of the date of transition to PPA. Therefore, for example, you may use a “Pre-PPA and PPA” set of Valuation Assumptions for Core Projection results to be used in either a “Pre-PPA”, a “PPA” or a “Pre-PPA and PPA” forecast. However, you may not use (again, as an example) a “pre-PPA” set of Valuation Assumptions for Valuation results to be used in a “Multiemployer” Valuation Set.
For Funding assumption sets in the Canadian registered mode, check the Calculate Solvency Liability box if you wish to have the solvency liability computed. Uncheck this box to turn off the solvency liability calculations. Valuation Sets and forecasts may be run without solvency liability if the Calculate solvency special payments box is unchecked under the Minimum Funding Amortization Bases topic of the Asset & Funding Policy. However, if your Valuation Set or forecast does calculate solvency special payments, then if your base funding Valuation(s) or Core Projection(s) do not have solvency liability calculated, you will need to use the Solvency Liability Override feature of Valuation Sets or forecasts to enter the Valuation(s) or Core Projection(s) that contain solvency liability calculations.
For Funding assumption sets in the U.K. mode, ProVal needs to know whether to reflect the PPF rules. Current Applicable law options are:
| Ongoing | Do not apply PPF rules |
| PPF | Apply the PPF rules under Section 179. See Pension Protection Fund Liability (Section 179) for details. |
For Accounting assumption sets in the OPEB mode, check the Long Term Disability box to enter assumptions to value disabled participants under ASC712.
Select a topic to edit contains entries for each category of information (topic) found under the Valuation Assumptions command. The topic list varies by ProVal mode of operation. There may be specialized liability topics in the U.S. qualified, Canadian registered and German modes: a Current Liability topic and/or a PBGC Variable Premium Liability topic, if applicable according to the selected U.S. law; a Solvency Liability group of topics for Canadian assumption sets; and Teilwert Parameters & Gap and PSVaG Liability topics for German assumptions. For funding assumption sets in the U.S. qualified and Canadian registered modes, the topics are grouped by liability type. In the U.S. qualified mode, the grouping varies with the selected applicable law.
Click the name of a topic to access its parameters. Where topics are grouped for a funding assumptions set, the heading (either “Actuarial Liability” or “Target Liabilities” in the U.S. qualified pension mode; either “Ongoing Liability” or “Solvency Liability” in the Canadian registered pension mode) is for descriptive purposes only; in the Valuation Assumptions dialog box, click the indented topic name to access its parameters. The topics are:
Cost-of-Living Adjustments (COLAs) (pension modes other than U.K.)
Pension Increases (U.K. pension mode)
GMP Increases (U.K. pension mode except “PPF” law selection)
Increase & Crediting Rates (pension modes) or Increase Rates (OPEB mode)
PPF Benefit Caps (U.K. pension mode “PPF” law selection)
Commutation (U.K. pension mode except “PPF” law selection)
Lump Sum & Optional Payment Forms (pension modes only)
Liability Methods for funding assumptions (except U.S. qualified mode “PPA” law selection, German mode tax / funding assumptions and U.K. mode “PPF” law selection)
Liability Methods for accounting assumptions (pension modes only)
Liability Methodology for funding assumptions (U.S. qualified mode “PPA” law selection)
Teilwert Parameters (German pension mode tax / funding assumptions)
PSVaG Liability (German pension mode tax / funding assumptions)
Current Liability (U.S. qualified mode “Pre-PPA” or “Pre-PPA and PPA” law selection) or Current & Vested Liability (U.S. qualified mode “Multiemployer” law selection)
Target Liabilities (U.S. qualified mode “Pre-PPA and PPA” law selection)
Actuarial Liability (U.S. qualified mode “PPA” law selection)
PBGC Variable Premium Liability (U.S. qualified mode except for “Multiemployer” law selection)
Solvency Liability Transfer Value Liability (Canadian registered mode)
Solvency Liability Annuity Purchase Liability (Canadian registered mode)
Solvency Liability Cost-of-Living Adjustments (Canadian registered mode)
Solvency Liability Optimal Value (Canadian registered mode)
Additional Liabilities (German mode tax / funding assumptions)
You may specify Valuation Assumptions by copying parameter settings directly from another set of Valuation Assumptions that exist in the current (ProVal) client. To do so, click the Populate button.