Pension accounting primer

Understanding Actuarial Results A Pension Accounting Primer Johnson, West & Co., PLC Van Iwaarden Associates June 16, 2010 Mark Schulte, FSA, EA, MAAA 612.596.5971 [email_address]

Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Presentation Goals ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Non-Aspirations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],Orientation

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Orientation

Orientation Pension Plan ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ Strings Attached”

Actuarial Speed Dating ,[object Object],[object Object],Basic Premise of All Actuarial Pension Calculations

[object Object],[object Object],[object Object],[object Object],Actuarial Speed Dating Census data for all participants ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Asset methods Liability methods How benefits are defined

The Actuarial Model Plan Provisions Assumptions Data Methods Actuarial Model Funding Accounting ,[object Object],[object Object],[object Object],[object Object],[object Object],Liabilities Accrued Projected Future Costs Present Value of Benefits

Actuarial Speed Dating Determining the value of pension payments Start Working Current Age Retirement Age Death Period of Annuity Payments 35 45 65 95

Actuarial Speed Dating Term structure of interest rates Time Return 5 years 3% 6% 30 years

Actuarial Speed Dating Time Return Segment 1 2% 6% Segment 3 4% Segment interest rates Segment 2

Actuarial Speed Dating Calculating the present value of benefits Hire Age Current Age Retirement Age Death 4% 6% Example: $100 x (1+.04)^(-20) = $46 $100 x (1+.06)^(-50) = $5 35 45 65 95

Actuarial Speed Dating ,[object Object],[object Object],VBO ABO PBO PVB Acronym Vested Current Vested Benefit Obligation Current Current Accrued Benefit Obligation Current Projected Projected Benefit Obligation Projected Projected Present Value of Benefits Service Pay Liability Measure

Actuarial Results ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Actuarial Results Same Plan Provisions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Methods - Liability - Asset ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],- Economic Same - Demographic Assumptions Participants on last day of prior plan year Participants at beginning of plan year Data PBGC Premiums FAS 35 Accounting GAAP Accounting PPA Funding Inputs

Actuarial Results ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],GAAP Accounting Highlights

Actuarial Results ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],GAAP Accounting Highlights

Actuarial Results ,[object Object],GAAP Accounting Highlights H. G. F. E. D. C. B. A. $ (40) (Accrued)/Prepaid Pension Cost (C. – G.) $ (160) Accumulated OCI (D. + E. + F.) (110) Unrecognized gains/(losses) (50) Unrecognized prior service credits/(costs) $ 0 Unrecognized transition obligation $ (200) Funded status (A. + B.) 800 Fair value of assets $ (1,000) Projected Benefit Obligation (PBO)

Actuarial Results ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ Specialty” Accounting Calculations (FAS #88)

[object Object],[object Object],[object Object],[object Object],[object Object],Summary

Additional Information Contact Information: Mark Schulte, FSA, EA, MAAA [email_address] 612.596.5971 Van Iwaarden Associates 840 Lumber Exchange 10 South Fifth Street Minneapolis, MN 55402 www.vaniwaarden.com 1.888.596.5960

Pension accounting primer

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Pension accounting primer