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week2 - PENSION MATHEMATICS ACT 470H1 Week 2 Lorne F Cohen...

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PENSION MATHEMATICS ACT 470H1 Lorne F. Cohen January 15, 2007 Week 2

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2.2 - UNIT CREDIT (U.C.) Assumptions and Notation · w = age at hire · B(x) = accrued benefit at age x, w x y · y = retirement age · want to accumulate at retirement · assume no new entrants (for now) · T = Employees who terminate between t and t + 1 · R = Employees who retire between t and t + 1 · = Active Employees at time t · thus, +1 = - T - R
Accrued Liability distinguishing characteristics of UC method: ideal fund assets should equal the D's are calculated using probabilities of terminations from all sources NOT just mortality - called a service table the ideal fund balance is called the accrued liability (AL) = Present Value of accrued benefits (Unit Credit Method) this definition distinguishes it from other cost methods describes completely the annual pension costs again, assume no new entrants (for now)

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Normal Cost (NC) represents the PV of increase in accrued benefits between t and t+1 NC does not usually equal the full “cost” of the plan unless a) the fund balance equals the accrued liability, and b) assumptions are realized exactly

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week2 - PENSION MATHEMATICS ACT 470H1 Week 2 Lorne F Cohen...

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