This topic pertains to treatment of an unfunded liability under the “Normal Cost + Supplemental Cost” employer Contribution Policy, selected under the Contribution Policy topic, or under GASB accounting standards 25/27 or 43/45. Its parameters apply in all modes; in the U.S. qualified and Canadian registered modes (which do not have a topic for amortization bases other than those reflecting the minimum and/or maximum contribution basis), its parameters are found under the Contribution Policy topic (behind the Additional Parameters button).

For Existing bases, i.e., bases already in existence on the Valuation Date (which is entered under the Initial Asset Values topic), enter the Schedule date, which should be the same as the Valuation Date. Complete one row in the spreadsheet for each existing unfunded liability base: enter a Description, the Outstanding Balance, and the Remaining Amortization Period as of the Schedule date . You may optionally also enter the Initial Amount and Date Established, which are displayed in Valuation Set Exhibits. Enter a credit base, such as an actuarial experience gain, as a negative number. For the amortization period, enter either a constant number of years which indicates that the remaining period will decrease by one in each forecast year, or click Edit Period to enter a custom schedule. A custom schedule allows you to enter the remaining period as a vector. For example, a remaining period of 10,8,6 means a 10 year amortization this year, an 8 year amortization next year, a 6 year amortization period the year after than, and then decreasing 1 per year thereafter. You may also enter a 0 to skip an amortization payment due that year (in this case, the outstanding balance will grow with interest until there is a non-zero amortization period).  

For the Future bases amortizations, enter the amortization payment Type and if applicable, the number of Amortization Years over which to amortize bases created at future valuation dates, separately for each type of base:

Type of Base:	Definition of Base:
Assumption change	Change in actuarial assumptions
Gain or loss	Actuarial experience gains or losses
Active benefit change	Created by a plan amendment for active participants
Inactive benefit change	Created by granting ad hoc COLAs for inactive participants
Funding method change	Change in calculation methodology (aka cost method or funding method)

Check the box Future amortization varies if unfunded or in surplus if the Type or period of amortization differs depending on the funded status of the plan.

For each type of base, first select the amortization payment Type:

• “Closed”, if the amortization period is determined when the base is established and decreases at each future valuation date, until the base is fully amortized. 

• “Open”, if the remaining unfunded liability (or surplus, if the unfunded liability amount is negative) should be amortized on a “rolling basis” (i.e., the amortization period is “fresh started” at each future valuation date).  Open amortization cannot be used with an Actuarial Cost Method that has a frozen initial liability and if this amortization type is selected, the run will abort with an error message.  

For each closed type base, enter the Amortization Years. Enter either a constant number of years which indicates that the remaining period will decrease by one in each forecast year, or click Edit Period to enter a custom schedule that can vary by forecast year. A custom schedule allows you to enter the remaining period as a vector. For example, a remaining period of 10,8,6 means a 10 year amortization this year, an 8 year amortization next year, a 6 year amortization period the year after than, and then decreasing 1 per year thereafter. You may also enter a 0 to skip an  amortization payment due that year (in this case, the outstanding balance will grow with interest until there is a non-zero amortization period). If the Future amortization varies if unfunded or in surplus, the amortization years should be entered separately in Amortization Years if Unfunded and, if no special treatment when in surplus, the Amortization Years if Surplus.

If there are any open type bases, enter the Fixed amortization year, the future year at which the entire unfunded liability (or surplus, if the unfunded liability is negative) will be fully amortized on a rolling basis, subject to a minimum amortization period (entered for the Minimum amortization years for forecast parameter, discussed in the next paragraph).

Enter the Minimum amortization years for forecast (at least one year, must be an integer value). This is the shortest period that will be used for the rolling amortization of the unfunded liability or surplus. For example, if the unfunded liability is amortized through 2023 with a 5 year minimum amortization period, then for valuation dates in 2019 and later years, the unfunded liability will be amortized over 5 years, rather than the period from the future forecast valuation date to the valuation date in 2023 (which period is less than 5 years for valuation dates in 2019 through 2023, inclusive, and is negative for valuation dates in 2024 and later years).

Enter the Amortization payment increase rate, i.e., the assumed rate of annual increase in payroll that will be used for amortizing the supplemental cost as a level percentage of pay. For example, enter 0.03 for a 3% increase rate assumption. If the supplemental cost is to be amortized by the same monetary amount each year (i.e., the amount is constant), enter “0”.

Indicate any Special treatment when in surplus (i.e., if the unfunded liability becomes negative):

• Select None if a surplus should be treated no differently from an unfunded liability (i.e., an amount exceeding zero) for amortization purposes, with all existing bases maintained and the surplus amount as of the future valuation date established as a negative, or credit, base.

• Select Eliminate closed bases and do not amortize surplus to eliminate any existing amortization bases when a surplus should not be amortized.

• Select Eliminate closed bases and amortize surplus to eliminate any existing amortization bases and amortize the surplus. This option is only available if all surplus amortization types are open.

• If all base types are open, you may select Amortize a portion of the surplus if less than the full surplus will be amortized (therefore, the normal cost will not be reduced as much as if the entire surplus were amortized, as under the first option, None).
  Click the params button to enter the Percent of surplus recognized based on surplus percent. Enter the surplus percentage for the lower limit of each “threshold” in rows in the From column, where the percentage is calculated according to the formula [100 * (actuarial assets - actuarial liability) / actuarial liability]. ProVal completes the To column automatically. Enter the percent of the surplus to amortize for that “bucket” (surplus range) in the % Recognized column. For example, if you want to preserve a 5% surplus (i.e., to amortize only the surplus amount in excess of a funded ratio of 105%), the first row should have a “0” in the From column and a “0” in the % Recognized column and the second row should have a “5” in the From column and a “100” in the % Recognized column.