Ongoing Amortizations
The Ongoing Amortizations topic furnishes detailed information for determining the statutory minimum required contribution calculated during execution of a Valuation Set, Deterministic Forecast or Stochastic Forecast.
Existing Bases
The Schedule date is the “as of” date for outstanding balances of the Ongoing existing amortization bases on this screen and the Solvency existing amortization bases on the Solvency Amortizations screen. This date should be the same as that entered for the Valuation Date under the Initial Asset Values topic. Note that this schedule date is ignored during the calculations. Thus, for example, a plan change increasing benefits in the middle of the plan year cannot be accounted for by entering the mid-year effective date as the schedule date. In that situation, separate runs, reflecting the old and new plan provisions, with a schedule date equal to the valuation date, must be done, and the results prorated or combined in some other appropriate manner, to account for the mid-year effective date. For an illustrative approach for handling this situation, see our Frequently Asked Questions article entitled Mid-year change in benefit level. (Although this article was written specifically to address U.S. regulatory valuation requirements for mid-year plan amendment effective dates, the approach to parameter coding it illustrates should be useful for Canadian plans as well.) The schedule date entered is considered in ProVal only when a Roll Forward is attempted using the Asset & Funding Policy Update button; a roll forward is not permitted if the valuation and schedule dates do not match. (Copying amortization schedules from a Valuation Set will set the schedule date equal to the Valuation Date of the Valuation Set.)
Check the Amortize as percent of payroll with box if you wish to determine all amortization payments as a level percent of payroll, perhaps reflecting an assumed annual rate of increase in payroll. Enter the assumed increase rate, for example, 0.03 for a 3% increase in payroll each year. To amortize as a level percent of a flat (non-increasing) payroll, enter 0. (Note that if under the Contribution Policy topic you specified your Contribution Policy as "Normal Cost + Supplemental Cost", the value entered for the Amortize as percent of payroll with parameter must be the same as the amortization payment increase rate entered under the additional parameters button of the Contribution Policy. ProVal will only store one value for these two parameters.)
For each existing Ongoing liability amortization base, enter the following:
Description, which is the name you choose to describe this base.
Date established is the date the existing base was established and is optional.
Date of first payment. Enter the date the first payment was due (e.g., 1/1/2023 for a 2022 plan year loss). This parameter is optional unless you have checked the box to defer special payments by 1 year, the base you are entering was established on the Valuation Date that was entered under the Initial Asset Values topic, and the first payment is due 1 year after the Valuation Date.
Initial amount of the base on the date it was established.
Initial Amortization period (years) as of the date the base was established.
Remaining years as of the later of the Schedule date and the Date of first payment (in the case of a payment deferred by 1 year), including the current plan year (year beginning on the Valuation Date entered under the Initial Asset Values topic).
Outstanding balance. Enter the unamortized amount of the base as of the Schedule date, based on the funding interest rate, and include the amount to be amortized during the current plan year. This input is optional for ongoing bases when the For ongoing amortization bases, maintain parameter is set to "payment schedule" under the Advanced button on the main dialog.
Annualized amortization amount (total amount of amortization payment made over the year) as of the beginning of the current plan year. This input is optional for ongoing liability bases when the For ongoing amortization bases, maintain parameter is set to "present value" under the Advanced button on the main dialog, in which case ProVal directly calculates the amortization amount, using any value specified here only to generate a warning, by way of a footnote, in the Valuation Set Exhibits if the two values differ.
Select the Initial source of the base: a "Technical (e.g., actuarial loss)”, which is an actuarial deficiency (sometimes referred to as an actuarial loss); the “Initial unfunded liability”; or an “Improvement (e.g., plan change)”, sometimes referred to as an amendment. Currently this information is used when the option to apply ongoing gains to technical deficiencies first (before the initial unfunded liability or an improvement) is elected, indicated by a check in the Offset technical deficiencies first box under the Advanced button.
Indicate whether to Include payments beyond 5 years in solvency assets. Check this box to indicate that this is a grandfathered ongoing liability base with respect to the determination of solvency assets, and thus all future amortization payments, rather than just those payable during the next 5 years, are includable in solvency assets. If Federal Applicable Provincial Law is selected and you are applying the regulations effective July 1, 2010, a check in this box indicates that a special payment was reflected when the initial solvency deficiency was created.
See also the following discussion of optional settings.
Asterisks denote parameters of the Minimum Funding Amortizations dialog box that are not required to define the existing liability base; any entries made, however, for these parameters will be displayed in the Valuation Set Exhibits. The required entries depend on the setting of the For ongoing amortization bases, maintain parameter under the Advanced button on the main dialog.
For an Ongoing liability base when the Plan Sponsor is obligated to fund a specific unfunded liability amount (i.e., the For ongoing amortization bases, maintain parameter is set to "present value" under the Advanced button on the main dialog), the required entries are the Remaining years, the Outstanding balance (ongoing basis), the Initial source of base and whether to Include payments beyond 5 years in solvency assets, ProVal directly calculates the amortization amount. Note these special rules when the Applicable Provincial Law is Federal (PBSA): The Include payments beyond 5 years in solvency assets box should be checked for any going concern special payment that was reflected in the calculation of the initial solvency relief base and thus should be used to offset the solvency deficiency. Any solvency special payments entered will be used to offset the solvency deficiency. For the special payments available to offset the solvency deficiency, the present value of the special payments will be determined based on a period that is the lesser of the remaining amortization period for the special payment or the remaining solvency relief period (as long as the period is more than 5 years). Once the period becomes 5 years or fewer, the solvency deficiency is no longer offset by the present value of the special payments.
When the For ongoing amortization bases, maintain parameter is set to "payment schedule" under the Advanced button on the main dialog), the required entries are the Remaining years, the Annualized amortization amount and the Initial source of base. ProVal directly calculates the outstanding balance.
If you have checked the box to defer special payments by 1 year, the base you are entering was established on the Valuation Date that was entered under the Initial Asset Values topic, the Date of first payment is required and must be exactly 1 year after the Valuation Date.
Future Bases
These parameters control the methodology for adjusting ongoing bases when valuation gains are determined and/or when solvency deficiency bases are added or changed.
Check the defer new special payments by 1 year box if you wish the special payments established as of the valuation date to have the first payment deferred for one year. The option to defer special payments for one year is only available if (1) you have selected an applicable provincial law other than "Federal (PBSA)" or "Quebec", (2) the checkbox offset technical deficiencies first is not checked, (3) the ongoing adjustment methodology when solvency deficiency is set to "do not adjust", and (4) for ongoing amortization bases, maintain "payment schedule" is selected under the Advanced button discussed below.
Enter the amortization periods for new bases. Separate parameters are provided for actuarial losses and plan amendments.
Select the desired Methodology for applying ongoing gains when a going-concern valuation gain is created:
Pro-rate existing payments will pro-rate the outstanding balances and amortization payments of each ongoing base by the ratio of the gain to the total outstanding balance. Thus, when an ongoing valuation gain is created, existing amortization bases and payments will be pro-rated down by an amount equal to a portion of the total gain.
Offset applies the gain to one ongoing base at a time, based on the parameters selected in the drop-down boxes. Select Offset first scheduled payments to apply the gain starting with the base with the shortest remaining amortization period, or select Offset last scheduled payments to apply the gain starting with the base with the most recently scheduled payments (i.e., the longest remaining amortization period). You must also select whether to hold payment constant or hold period constant when applying the gain. When the payment is held constant, the remaining amortization period is adjusted down. When the period is held constant, the amortization payment is adjusted down. For example, if you select “first” and “period”, then the gain will be applied as an offset to the amortizations that were scheduled first, in successive order, until the gain is completely offset. The gain will be applied first to the base with the shortest amortization period and, if that base can be completely offset, the remaining gain will be applied to the base with the next shortest amortization period. If a base can be only partially offset, the outstanding balance and amortization payment will be reduced pro-rata, while the amortization period remains unchanged.
There are a number of additional parameters under the Advanced button.