Actuarial Cost Method

Actuarial Cost Method

Any method used to determine how much money the premiums to a pension must be each month. In order to remain solvent, a pension's premiums plus the return of investment must equal or exceed the amount paid out to retirees. The company managing the pension uses an actuarial cost method to calculate premiums based on that assumption. It is also called an actuarial funding method.
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In statements 43 and 45, issued in 2004, GASB recommended that plan administrators use one of four actuarial cost method to determine an employer's normal cost contribution.
A Statement Of The Actuarial Cost Method Selected And Actuarial Assumptions;
When employers calculate former employees' COBRA premiums, for example, they typically use either an "actuarial cost method" or a "past cost method" to decide how much the COBRA premium ought to be.
A comprehensive funding policy has several moving parts, including an actuarial cost method, asset-smoothing techniques, and the manner in which any unfunded liabilities are amortized.
The annual cost is based on an actuarial cost method.
Six actuarial methods are allowed; however, special disclosure is needed it the aggregate actuarial cost method is used.
* Governments that use the aggregate actuarial cost method to disclose the funded status and present a multi-year schedule of funding progress using the entry age actuarial cost method as a surrogate; these governments previously were not required to provide this information.
An actuarial cost method provides a flexible funding schedule for computing both annual contributions and accrued liability for a pension fund.
The actuarial cost method and funding assumptions would allow the creation of large deductions.
Recommendation on which actuarial cost method should be used; entry age; frozen entry age, attained age, unit credit or aggregate;
Likewise, the parameters (e.g., actuarial cost method, asset smoothing, and amortization) that have standardized how an ARC is calculated have been eliminated from GAAP.
This alternative method includes the same broad measurement steps as an actuarial valuation (projecting future cash outlays for benefits, discounting projected benefits to present value, and allocating the present value of benefits to periods using an actuarial cost method).