Actuarial Liability
If your selection for the applicable law parameter is “PPA”, that is, you are performing single-employer plan valuations, and perhaps forecasts, under only the funding rules of the Pension Protection Act of 2006 (PPA), then funding assumptions and methodologies for (optional) calculation of actuarial liability (and normal cost) under one or more of the traditional liability methods permissible prior to the enactment of PPA are specified by the Actuarial Liability topic. The funding interest rates and mortality rates, i.e., used for (PPA) target liabilities, will be used to compute these “actuarial liabilities”, unless you specify alternative bases here.
Note that this is not the place to define the interest rates or mortality basis for computing the PBGC variable premium liability, which has its own associated interest rates and mortality basis (specified under the PBGC Variable Premium Liability topic).
You may select calculation of liabilities under one or more traditional liability methods, that is, Entry Age Normal (EAN) – Level percent of salary, Entry Age Normal (EAN) – Level dollar, Projected Unit Credit (PUC), Pure Unit Credit (UC) and Individual Aggregate, as a special case of entry age normal. If an entry age normal method is selected, you can also specify the EAN funding span for each benefit, the EAN Normal Cost employee contribution methodology and the basis of EAN historical salaries for PVFS at entry. Under any selected liability method, you can specify a Maximum Compensation Limit for PVFS & valuation salary and the Timing for PVFS, PVFL, valuation salary & (valuation) number. For details about these parameters, see the discussion under the Liability Methods - Funding topic.
Note that ProVal will always calculate the present value of future benefits (PVFB). The PVFB assumptions will be the same as for the not-at-risk target liability, unless you specify adjustment of the first funding age (so that not all employees are included in the plan from hire date), selection of the term cost method to value specific benefits, use of an alternative interest rate or use of an alternative mortality basis. (See the discussion of the relevant parameters below.)
The remaining parameters of this topic specify methodology information that applies regardless of the liability method(s), among the preceding check boxes, that you have selected.
Projected salary and head count in Output
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.
First Funding Age
Check the Adjust first funding age box and then click the Funding button to specify the age, or starting point, for including employees in the plan, thus generating a normal cost for them under your selected liability method(s). (This is also the first age at which there can be a term cost, if any benefits are valued under the term cost method.) Inclusion in the present value of future benefits will also be determined by these specifications.
For details about coding the parameters of the First Funding Age dialog box, see the discussion of inclusion parameters under the Other Valuation Parameters topic.
Term Cost
The term cost method is not commonly used in the U.S. qualified pension mode, except perhaps for pricing ancillary benefits, generally disability and/or pre-retirement death benefits. (You may wish to consider whether use of this cost method under PPA is reasonable.) The term cost method calculates the liability expected to be incurred during the year beginning on the valuation date (current year) only. In other words, it represents the probability that an individual will decrement during the current year, with a benefit payable (either immediately or deferred), multiplied by the benefit’s present value on the valuation date. A benefit selected for term cost is excluded in the determination of liabilities and normal costs under the selected actuarial cost method, because the term cost itself is the plan’s normal cost for this benefit.
Check the Term cost specific benefits box and then click the Benefits button to select the plan benefits to value under the term cost method.
For details about coding the parameters of the Term Cost Benefits dialog box, see the discussion of term cost method parameters under the Liability Methods - Funding topic.
Alternative Interest Rate
Check the Use alternative interest rate box and then click the Interest button to specify the interest rate basis to use for present value of benefits and actuarial liabilities instead of the interest rates specified under the Interest Rates topic for the (funding) target liabilities.
You may specify a Constant interest rate, optionally including different constant rates for the Pre-decrement, In-deferment and Post-decrement periods, Variable by duration from valuation date interest rates (spot or forward) or Variable by calendar year interest rates. Enter all interest rates as numbers between -0.02 and 0.25 (not as percentages).
For details about coding the interest rate parameters, see the discussion under the Interest Rates topic for law selections other than “PPA”.
Alternative Mortality
Check the Use alternative mortality box and then click the Mortality button to specify the mortality rate basis to use for present value of benefits and actuarial liabilities instead of the mortality rates specified under the Decrements topic for the (funding) target liabilities.
You may specify the (rates or) probabilities of death for actives and the probabilities of death for inactives, by ProVal status, as well as for actives after a decrement has occurred. (For details about how ProVal determines whether status is active or inactive, see the Status Code Mappings topic of Census Specifications.)
For details about coding the mortality rate parameters, see the discussion under the Decrements topic for law selections other than “PPA”. Note that your selections, under the Decrements topic, for the parameters governing when Active decrements occur and the nature of the Rates to adjust for competing decrements will be applied under your alternative mortality basis.