Asset Valuation Methods
The ERISA Asset Valuation Method topic (U.S. qualified mode), the Funding Asset Valuation Method topic (all modes except U.S. qualified), the Solvency Asset Valuation Method topic (Canadian registered mode) and the Accounting Asset Valuation Method topic (all modes except U.S. public) provide the methods listed below to determine actuarial value of assets (for funding), solvency value of assets (in the Canadian registered mode) and market-related value of assets (for accounting).
For U.S. qualified plans, to determine whether an asset valuation method meets the requirements for an acceptable smoothing method under the Pension Protection Act of 2006 (PPA), the technical corrections of the Worker, Retiree and Employer Recovery Act of 2008 (WRERA) and, for multiemployer plans, the Pension Relief Act of 2010 (PRA), refer to the laws and the relevant Internal Revenue Service pronouncements for guidance (including, for multiemployer plans, IRS Notice 2010-83).
Market Value
Under this method, the asset value is simply the value entered under the Initial Asset Values topic.
Funding Actuarial Value (Canadian registered mode only)
This method is available only under the Solvency Asset Valuation Method topic, for solvency asset value determination. Under this method, the value of assets for solvency purposes is set equal to the asset value determined under the Funding Asset Valuation Method topic.
Corridor Method (not available for Canadian mode solvency assets)
N-Year Performance Index Method (not available for Canadian mode solvency assets)
Select this method also to use the “Sum of Digits” asset valuation method.
Blending of Book and Market Values (funding and solvency only)
Weighting of Market and Expected Actuarial Values for funding, called Weighting of Market and Expected Solvency Values for solvency and Weighting of Market and Expected Market-Related Values for accounting
N-Year Adjusted Market Values (funding and solvency only)
Under the Market Value Corridor parameter (funding and solvency) or the Apply Market Value Corridor parameter (accounting), you may restrict asset values to a specified range under any asset valuation method that adjusts market value (that is, all options except Market Value and, for solvency assets in the Canadian registered mode, Funding Actuarial Value). Enter the maximum and minimum percentage constraints on market value in the fields for the Upper Bound and Lower Bound, respectively; these limits will be applied to the value of assets resulting from application of the selected asset valuation method.
In the public pension mode, uncheck the Market Value Corridor box if you wish to remove the constraint that the asset value fall within the bounds of a corridor.
Note that for a forecast in the U.S. qualified mode, for ERISA funding purposes, if you wish to “switch” the corridor bounds from 120% / 80% to 110% / 90%, to transition to PPA asset valuation rules at a future forecast valuation date, you must adjust your results manually.
For asset valuation methods requiring the use of the valuation interest rate, note that when discounting is based on a full yield curve or segment rates, the effective interest rate will be used as the valuation interest rate.
Check the For expected assets, give full year of interest on contributions receivable box, (accessible for all asset valuation method choices except Market Value, N-Year Performance Index Method, and N-Year Adjusted Market Value) to ignore the actual timing of contributions receivable and instead treat them as if they are included in the assets on the valuation date. In the U.S. qualified mode, under a “PPA” law selection, or for a plan year subject to PPA’s funding rules under a “pre-PPA and PPA” law selection, the contributions receivable are discounted to the beginning of the year using the prior year effective interest rate (and it is this discounted value that receives interest for a full year).
In the U.S. qualified mode, under the ERISA Asset Valuation Method topic, there is an Elect 431(b)(8)(B) Asset Rules check box if the law selection is “Multiemployer”. Check this box if you wish to reflect either (or both) of the PRA asset rules of Internal Revenue Code section 431(b)(8)(B), regarding asset smoothing and adjustment of the asset value corridor. If this box is checked, the Asset Rules Parameters button will be accessible; click the button to enter parameter values for the asset rule(s) you wish to elect:
The Elect Smoothing Rule check boxes, to elect an asset smoothing rule, are accessible only if the selected asset valuation method is Market Value or N-Year Average and, if N-Year Average, the “Excess return over expected return” option is selected for the Asset Gain/(Loss) to be Spread parameter. Check an Elect Smoothing Rule box for a Plan Year: the plan years available for election are 2008, 2009 and 2010 under the Pension Relief Act and 2019, 2020, and 2021 under the American Rescue Plan Act, that is, the years beginning on the anniversary of the Valuation Date entered under the Initial Asset Values topic (these years will be referred to as “election years” throughout the remainder of this article). This tells ProVal to spread the difference between the expected and actual returns associated with the selected Plan Year over a period of not more than 10 years. If the Elect Smoothing Rule box is checked for a Plan Year, the Prior year’s Expected over Actual Gain/(Loss) and the Initial Smoothing Period text fields become accessible for that Plan Year. Enter the gain/loss value for the year prior to the election year. Enter an integer value between 1 and 10, inclusive, for the initial period over which to smooth this prior year gain/loss amount. (ProVal will measure the initial period from the Valuation Date anniversary in the election year.)
Under all asset valuation methods, the Elect 80/130 Corridor check boxes, to adjust the asset value corridor, are accessible. If checked for a Plan Year, the asset valuation method’s market value corridor lower and upper bounds will be 80% and 130%, respectively, instead of the values entered for the Market Value Corridor parameter.
Calculation details under the asset rule(s) elected are displayed in the Development of Actuarial Assets exhibit of the Valuation Set Exhibits, Deterministic Forecast Exhibits and Stochastic Trial Exhibits commands.
The Parameters button, accessible for all asset valuation method choices except Market Value, is used to specify the additional information necessary for any selected asset valuation method (except unadjusted market value and, in the Canadian registered mode, the solvency method option to use the funding actuarial value).
Additional Solvency Value Parameters
In the Canadian registered pension mode, under the Solvency Asset Valuation Method topic, you must also specify the Adj. for non-marketable assets, etc. the dollar amount, typically negative, that will be used to further adjust the solvency assets, after the solvency asset value is determined according to the selected asset valuation method and constrained by the specifications of the Market Value Corridor parameter. The value entered here will be held constant during a forecast.