PDF 03/31/23 04:44 pm PENSIONS SL/LD H3100.S3162-DE1 Interest rate assumption--Suspension of new supplemental pension contracts--No right to particular price. Assumptions such as compensation increases or cash balance crediting rates are often used to determine projected benefit streams for valuation purposes. The actuary should take appropriate steps to determine the time horizon, the price inflation, and the expenses reflected in the expected returns. Select and Ultimate Investment Return RatesAssumed investment return rates vary by period from the measurement date (for example, returns of x% for the first 10 years following the measurement date and y% thereafter). 41 for communication and disclosure requirements regarding changes in circumstances known to the actuary that occur after the measurement date and that would affect economic assumptions selected as of the measurement date. Actuaries can still set other economic assumptions, such as compensation increases, inflation, or fixed income yields. Consistency is not necessarily achieved by maintaining a constant difference between one economic assumption and another. Compound Interest Calculator - NerdWallet The actuarys discretion over economic assumptions has been curtailed in many situations. The service cost component of net periodic benefit cost could be volatile from year to year as a result of using current discount rates because the changes in discount rates will immediately affect the PBO and EPBO, which is the basis for determining service cost. Document Status: Adopted. Pension obligation values incorporate assumptions about pension payment commencement, duration, and amount. The discount rate is the most significant economic assumption used to calculate a plan's liability. Having access to a new methodology would not, by itself, be considered a change in facts or circumstances that supports switching to the use of that methodology. Under ASC 715, the expected return on assets is a component of the employee benefit cost. ); (iii) a stationary or dynamic target allocation of plan assets among different classes of securities; and (iv) permissible ranges for each asset class within which the investment manager is authorized to make investment decisions. In nonprescribed situations, practice is still dependent upon the individual actuary. hk0}E0yn&jjRC~w#gF(pNw? The investment return assumption reflects the anticipated returns on the plans current and, if appropriate for the measurement, future assets. The assumed rate of return will not be reduced below the bottom of the range. 4 0 obj Daily Monthly Annually. However, the selection or advice should reflect the actuarys professional judgment. Statistics for Employee Benefits Actuaries. <> If the general level of interest rates rises or declines, the assumed discount rates shall change in a similar manner. Specific expertise may be needed to compute and support an appropriate adjustment. Effect of ReinvestmentTwo reinvestment risks are associated with traditional, fixed income securities: (i) reinvestment of interest and normal maturity values not immediately required to pay plan benefits, and (ii) reinvestment of the entire proceeds of a security that has been called by the issuer. 3 0 obj When assuming select and ultimate investment return rates, the actuary should consider reflecting the relationships among inflation, interest rates, and market appreciation or depreciation. endstream endobj 1792 0 obj <>stream Therefore, we believe employers should use the actual yields, even if negative, on high-quality corporate bonds throughout the yield curve to measure their benefit obligations.
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