See also Liability Methods - Funding. Not applicable for Long Term Disability assumptions in OPEB mode. 

All modes calculate accounting liabilities based on the projected unit credit and/or the (traditional) pure unit credit cost methods, depending on the type of liability item calculated. In particular, calculation of liabilities and service cost (or normal cost) for vested benefit obligation (VBO), accumulated benefit obligation (ABO) and ASC 960 present value of benefits is based on the unit credit cost method, whereas calculation of liabilities and service cost for projected benefit obligation (PBO/APBO) is based on the projected unit credit cost method. The output variable expected benefit obligation (EBO) is simply the accounting counterpart to the funding output variable present value of future (projected) benefits (PVFB) and its value thus is independent of actuarial cost methods.

In all pension modes, the Projected Benefit Obligation (PBO) and PBO normal cost are always calculated, based upon the interest rate(s) entered under the Interest Rates topic of accounting Valuation Assumptions.  

In OPEB mode, the Accumulated Postretirement Benefit Obligation (APBO) and APBO normal cost is always calculated.

In U.S. public pension and OPEB modes, check the Calculate Entry Age Normal box to calculate liabilities under the level % of salary variation of the entry age normal cost method.

• In U.S. public pension mode, you may Ignore alternative formulas for EAN Normal cost. GASB 67/68 and 74/75 disallow the use of alternative formula for EAN normal cost.
• You may also specify what age the Entry Age Normal funding span ends at. The funding span described in GASB 67/68 and 74/75 ends at the age at which retirement rates become 100% (this is the default option). In certain situations, typically found in OPEB, it might be appropriate to select the funding span that ends at the last age with any future benefit (consider a plan where 100% retirement age is 70 but the OPEB plan only pays pre-65 benefits). For details, see the discussion under the Liability Methods - Funding topic.
• You may also specify ​Entry Age Normal historical salaries for PVFS at entry​. For details, see the discussion under the Liability Methods - Funding topic.
• In public mode, if the plan includes ongoing employee contributions, the employer normal cost is determined by subtracting from the total normal cost the expected employee contribution computed under the ”Expected contributions for the year” option (see the Technical Reference article entitled Employee contribution methodology for details).

In German mode, check the Calculate Modified Teilwert box to calculate liabilities and normal costs under the modified Teilwert method. Then select whether the calculation should be on a level amount or level percent of salary basis. If checked, Interest Cost and Service Cost available from Valuation and Core Projections will be calculated based on the Modified Teilwert basis (see Technical Reference article entitled German accounting service cost and interest cost for additional details).

Note that the Term Cost button, found under the Liability Methods topic of a funding Valuation Assumptions set, is not available in accounting valuation assumptions because our understanding is that the term cost method is not permitted for accounting purposes.

The remaining parameters of this topic are discussed in the following sections of this article.

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Vested Liability Parameters

In the U.S. qualified, universal and Canadian registered modes, check the Calculate Vested Liabilities box if you wish ProVal to calculate, for active participants, vested benefit obligation (VBO) and, in the U.S. qualified and universal modes, ASC 960 vested liability. These liabilities appear in ProVal Valuation Output as the variables “ABO (Vested Active)” and “ASC 960 (Vested Active)”.

In the U.S. public mode, check the Calculate Vested ABO liability (PBO & ABO always run) box if you wish ProVal to calculate, for active participants, vested accumulated benefit obligation, which will appear in ProVal Valuation Output as the variable “ABO (Vested Active)”.

For the Eligibility based on current service and ... age parameter, select "current" age if only benefits for which the participant has met the eligibility requirements based on age and service in the valuation year (as of the valuation date, if decrement timing is beginning of year) should be valued for vested liability purposes. That is, an early retirement subsidy, or penalty, is not vested. If "decrement" age is selected, eligibility is based on age in the decrement year, and the participant will grow into eligibility age requirements, provided the eligibility service requirements are met in the valuation year (i.e., an early retirement subsidy or penalty is vested).

The Under MOY decrements, current age and service determined at parameter is relevant only when active decrement timing is set to "middle of year". Select "BOY" to indicate that current age and service should be determined at the valuation date. Select "MOY" to indicate that current age and service should be determined six months after the valuation date, when the decrement occurs. If vested benefit eligibility is determined at decrement age (discussed in the preceding paragraph), this parameter applies only to current service, as current age is not relevant.

For details about calculating vested liabilities and the related parameters, see the Technical Reference article entitled “Vested liability calculation”.

Alternative Interest Rate Parameter for Accrued Benefit Liability

In the U.S. qualified and universal pension modes, the ASC 960 Liability parameter allows you to specify, for computing ASC 960 liabilities and normal cost, a different discount rate from the one used for ASC 715 calculations. If ASC 960 calculations are based upon the same discount rate as other liability items (entered under the Interest Rates topic), then you may leave this parameter set to Use accounting interest (discount) rate. Otherwise, click Alternative basis and then enter the rate in the Interest Rate box, as a number between zero and 0.25 (not as a percentage).

 

PVFS, Valuation Salary and Valuation Number Parameters

In the U.S. public and OPEB modes, the same parameters for present value of future salaries (PVFS), Valuation Salary and Valuation Number as furnished for funding valuation assumptions are also provided for accounting valuation assumptions (including the parameter to apply a maximum compensation limit to PVFS and Valuation Salary), except that the parameter indicating the timing of salaries is named Timing for PVFS, valuation salary & number, because present value of future working lifetimes (PVFL) is not computed for accounting valuations. For details about these parameters, see the discussion under the Liability Methods - Funding topic.

 

Projected Unit Credit, Unit Credit and Attained Age Liability Methods Parameters

In the universal pension mode, check the ABO career average components disregard future indexation box to assure that unit credit calculations for career average components will disregard indexation after the valuation date, thus producing the same ABO and ABO normal cost for career average components with indexing applied (typically used for pension plans in the Netherlands) as if there were no indexation applied after the valuation date.

A box entitled PBO benefits never less than ABO benefits is available in all pension modes. Because the projected unit credit cost method generally is used to calculate projected benefit obligation (PBO) but the pure unit credit cost method is used to calculate accumulated benefit obligation (ABO), it is possible, for some plan designs, for the PBO value to be less than the ABO value. Checking this box assures that the value of projected benefits inherent in the ASC 715 PBO calculation is no less than the calculated ABO value. For most plan designs, this choice will not affect the results. When the parameter does matter, usually for cash balance plans, it avoids counterintuitive results by inflating the accrued benefit underlying the PBO calculation.

Another box, entitled PBO equal to ABO for cash balance and career average components, is available in all pension modes. Checking this box assures that the results of PBO calculations will be set equal to ABO values for cash balance and career average components if the benefits are attributed according to accrual rate proration, as selected for attribution of each Benefit Definition.

Another parameter available in the pension modes specifies the PBO & ABO Attribution Service (i.e., for attribution of benefits under the unit credit and projected unit credit cost methods) when the attribution method is Linear Proration to Decrement or Linear Proration to age x, as selected for attribution of each Benefit Definition.

Service for Linear Proration to Decrement or Linear Proration to age attribution may be specified by either a database Field, a Service Definition. If a field is used, it may be either a service start date or a numeric field containing service as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current Project or, if you need fractional service attribution (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

In the universal pension mode, another option for Linear Proration to Decrement service is available. Select Determine notional attribution service based on projection of benefit component to calculate a notional attribution service based on the parameters specified under the Params button. This method is commonly used for pension plans in Switzerland to attribute benefits over a career instead of plan service. The notional attribution service is the total service span (from earliest age to retirement age) times the ratio of a cash balance component at the valuation date to a cash balance component projected to retirement age. The benefit will then be attributed linearly over the projected notional attribution service at decrement.

Under the Params button, select the cash balance component(s) used to calculate the notional service by choosing either Uses a single cash balance component or Varies by coded database field. Define the potential service span which begins From earliest age and spans To retirement age. Enter these parameters as either a database field or a constant value.

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.

 

Timing of Employee Contributions Parameter

In the pension modes (except German mode), for a plan with ongoing employee contributions, the Timing assumed for employee contributions parameter allows you to select when, for purposes of calculating the offset to (total) normal cost to produce the employer normal cost, employee contributions are assumed to be paid. For details about these parameters, see the discussion under the Liability Methods - Funding topic and see also Employee contribution methodology for calculation details.

 

Universal Pension Mode Parameter

An Interpolate results to exact age check box is available in the universal pension mode. If this box is not checked, ProVal will use the participant’s age nearest birthday on the valuation date (that is, the age on the birthday nearest the valuation date), as is done for calculations in other modes. If this box is checked, ProVal will make two passes for each participant (one pass as if the participant’s age on the valuation date were his/her age on the last birthday coincident with or preceding the valuation date, another pass as if the participant’s age on the valuation date were his/her age on the next birthday following the valuation date) and interpolate the two sets of results to the participant’s exact age on the valuation date. For details, see the Technical Reference article entitled Interpolate results to exact age.