ProVal uses the formula below (shown in two alternative but equivalent ways) to roll forward the funding market value of assets from one year to the next:
which can be expressed as
where:
y = nominal rate of asset (investment) return during the year*
MV = beginning of year (time t) and end of year (time t+1) market values*
EECont = employee contributions received during the year*
BP = benefits paid during the year *
ERCont = employer contribution received during the year *
PBGC = PBGC premiums paid during the year *
ADM = administrative expenses paid during the year *
Pay420 = section 420 transfer payments made during the year*
TotRet = total dollar asset (investment) return during the year*
C = contribution timing**
T = 420 transfer timing***
E = expense timing****
* Available in Output | Deterministic Forecasts (Pay 420 is listed as an Investment Return variable)
** Set by Timing of contributions parameters of Input | Asset & Funding Policy | Contribution Policy
*** Set by Fraction of year when transfer will occur parameter of Input | Asset & Funding Policy | Initial Asset Values
**** Set by Fraction of year from Valuation Date to average date expenses are paid parameter of Input | Asset & Funding Policy
| Administrative Expenses (PBGC Premium and Administrative Expenses in U.S. qualified mode)
The accounting market value of assets uses the same formula except that:
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administrative expenses may be different if they are based on a percentage of assets, and
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any contribution receivable is included in employer contributions.
If a schedule of contributions is used, then interest on employer contributions is computed based on the actual contribution dates in the schedule. In a forecast, after the baseline year, ProVal bases its calculations on the Fraction of year from Valuation Date to average date contributions are made parameter, regardless of whether a schedule of contributions is indicated.
Because it is assumed that (actual, cash) benefit payments are made in the middle of the year, whereas in the pension modes assumed expected benefit payment timing is never exactly in the middle of the year, generally a small loss is produced at each future valuation date in a forecast. For more information, see Interest on expected benefit payments.