Certain asset valuation methods involve asset smoothing techniques that, in order to determine the actuarial asset value, require the information entered under this topic about what you assume will be the actual fund experience. For example, some asset valuation methods treat fixed income assets differently from equities; other asset valuation methods require the use of a performance index return or an expected market rate of return. For information about the types of smoothing techniques supported by ProVal, the asset valuation methods that employ them and details about coding the corresponding parameters, see the topics of the Asset & Funding Policy relating to asset valuation methods. Except for the U.S. public pension mode, there are separate topics for funding (or ERISA in the U.S. qualified mode) and accounting asset valuation methods.

For each of the first two parameters, your specification applies to the experience of all forecast years. There may be up to 100 years, the number of years permitted in a Core Projection. For the remaining three parameters, you may specify the experience separately for each forecast year, starting with the baseline year (year beginning on the baseline valuation date and ending at the first forecast valuation date), which is denoted as Year 1. The experience of the second year (first forecast year), or year beginning on the first forecast valuation date, would be entered in the row for Year 2, and so forth.

Turnover is the fraction of the assets assumed to be sold annually each year, equivalent to the proportion of the year’s total capital gain or loss that is realized. This information is needed to split capital gains/losses between realized and unrealized gain/loss for asset valuation methods that smooth only unrealized capital gains or that reference realized capital gains or book value. Enter turnover as a number (e.g., 0.25), not as a percentage. Turnover may range from zero (no sale of assets) to 1 (all assets are sold during the year, i.e., the entire fund “turns over”).

Fixed income allocation is the fraction of the assets assumed to be fixed income types, equivalent to the proportion of the total asset amount that is invested in fixed income asset classes. This information is used to split the plan fund into fixed income assets and equity assets for asset valuation methods that treat fixed income asset classes differently from equity asset classes. Enter the allocation as a number (e.g., 0.5), not as a percentage. The complement, or 1 – this fraction, is the proportion of the total asset amount that is invested in equity asset classes. The fixed income asset allocation may range from zero (assets are all equities) to 1 (all assets are fixed income types). The fixed income proportion is needed for asset valuation methods that smooth asset values and distinguish between equity returns and fixed income returns; fixed income returns are not smoothed and instead are valued at current market value as of each valuation date in the forecast. To maintain the proportion of fixed income assets specified here, ProVal rebalances the plan fund continuously, i.e., the fraction entered here will be maintained throughout the year for all years. The fixed income assets return only the Income Return (next parameter of this topic), whereas equities may return both the Income Return and capital gains or losses.

The remaining parameters specify asset assumptions that are generally dependent upon the type of asset valuation method used.

Income Return is the bond coupon interest rate and stock dividend yield rate used to determine the Deterministic Forecast output cash flow variable Income. If the assets contain both dividend-yielding stocks and coupon bonds, you should enter a weighted average yield/interest rate, reflecting the proportions of the total plan fund that are invested in coupon bonds and dividend-yielding stock. ProVal will subtract the value of this parameter from the value of the total Investment Return parameter to determine the capital gain or loss on the fund’s investments. (See also Investment Return, Inflation & Lump Sum Benchmark Yield.) This parameter must be completed even if there are no fixed income asset classes and there is no equity income return, in which case, enter a value of 0. Enter the parameter value as a number, e.g., 0.04, not as a percentage. Note that you may not enter a negative income return, as coupon interest and stock dividends may not be negative.

Performance Index Return is used in conjunction with the N-Year Performance Index asset valuation method. (If you do not use this method for either funding or accounting forecasts, you may leave the parameter value blank.) The Performance Index parameter 0of the asset valuation method topic(s) of the Asset & Funding Policy specifies the performance index for years prior to the baseline valuation date; here you enter the performance index return assumptions of your deterministic forecast for the baseline year of the forecast and following years. Enter the rate as a number, not as a percentage.

In the U.S. qualified pension mode, there is an additional parameter, Expected Return Market Rate, which is the yield used to determine the expected return under the market-based rate variation of the N-Year Average of Asset Gains asset valuation method, which variation is available only for an ERISA asset valuation method. This variation is specified by selecting the option “Excess Return over Expected Return” for the Asset Gain/Loss to be Spread parameter of the asset valuation method topic of the Asset & Funding Policy and the option “Market-based Rate” for the Expected Return Based on Prior Year Return parameter of that topic. (If you do not use this method for funding forecasts, you may leave the parameter value blank.) The Current year rate parameter of the asset valuation method topic of the Asset & Funding Policy specifies the expected return market rate (typically a 30-year U.S. Treasury bond rate) for the baseline year of the forecast; here you enter the expected return market rate assumptions for the forecast years following the baseline year. Enter the rate as a number, not as a percentage.