Lecture 23 Pension Plan Funding

1
Lecture 23Pension Plan Funding

• Pension Plan Funding Instruments
• Actuarial Cost Methods
• Actuarial Assumptions

2
Pension Plan Funding Instruments

• Trusts
• Grantor - employer
• Trustee - party holding funds
• Beneficiaries - employees
• Fiduciary responsibilities

3
Pension Plan Funding Instruments - (cont.)

• Insurance Contracts
• Allocated
• Individual life insurance or annuity contracts
• Group permanent life insurance contracts
• Group deferred annuity contracts
• Unallocated
• Group deposit administration contracts
• Immediate participation guarantee contracts
• Separate accounts funding
• New money crediting

4
Actuarial Cost Methods

• Accrued benefit
• Projected benefit
• Past Service Cost
• Individual level-premiums method
• Entry-age normal
• Aggregate
• Attained-age normal
• Frozen initial liability

5
Actuarial Assumptions

• Interest rate
• Mortality
• Turnover
• Salary scale
• Retirement
• Disability
• Inflation

6
Summary

• Pension funding requirements are complex
• Significant choice in methods used to value
  pension plan funding needs
• Employer needs to select the actuarial method and
  assumptions that best meet the objectives of the
  plan