Lecture 23 Pension Plan Funding Pension Plan Funding Instruments Actuarial Cost Methods Actuarial Assumptions

Pension Plan Funding Instruments Trusts Grantor - employer Trustee - party holding funds Beneficiaries - employees Fiduciary responsibilities

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

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

Actuarial Assumptions Interest rate Mortality Turnover Salary scale Retirement Disability Inflation

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