Experience (Gain)/Loss

[Guest Turtle_01]

How do you calculate the experience (gain) or loss for an immediate gain funding method if both the Expected Unfunded Accrued Liability and the Actual Unfunded Accrued Liability are negative?

For example:

EUAL = -500

AUAL = -250

Do you limit either or both UAL's to zero?

[Mike Preston]

Which way makes your balance equation work?

[Blinky the 3-eyed Fish]

Limiting the UAL to zero or not is a component of the funding method. You must continue the same methodology unless you apply for approval. What was used in the past?

[Guest Turtle_01]

If I set my EUAL = 0, but allow my UAL to be negative, then my equation of balance is balanced.

[Guest Turtle_01]

It appears as though in the past the UAL was set equal to zero whenever the assets exceeded the liabilities.

It looks like the equation of balance doesn't work in that situation though.

[Blinky the 3-eyed Fish]

I assume you have a credit balance and no amortization bases?

[Guest Turtle_01]

That's correct. The prior valuation produced an ERISA FFC, so I fully amortized all prior bases.

Keeping with the original example, the method I am currently using to calculate my (gain)/loss is:

Credit Balance = 100

EUAL = 0

AUAL = -250

(Gain) = -250+100; adding the 100 b/c of the effect of ERISA FFC on the FSA credit balance.

This gives me an experience (gain) of (150) and sets my equation of balance at:

-250 = -150 - 100

Is this correct?

[Blinky the 3-eyed Fish]

You already said that the prior methodology limited the UAL to 0, so you have to keep that. So your expected and actual UAL are both 0, thus no gain or loss.

True, you do now have a balance equation that is "out of balance", but that is okay in this situation. What to watch for is the time in the future when you do have an UAL > 0. At that time you will have to set the experience gain/loss base to an amount that balances.

[david rigby]

Revenue Ruling 81-213 is the usual source of prohibiting a negative UAL. However, it does not prohibit a negative expected UAL. Hence, refer to Blinky's comment about the definition in the funding method.