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.
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
* 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.
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