valuation of interest rate guarantee

[Guest kishorActuary]

We have a plan, in which employee and employer both make mandatary contribution (say 12% of compensation) like defined contribution plans,

but employer gives guaranteed return on the contribution, which makes it defined benefit plan.

Thus actuarial valuation is required, am i right?

if yes, what are the possible ways by which we could valuate?

Thanks.

[carrots]

Is this a US plan?

[Guest kishorActuary]

This is a Indian Plan

cash balance plan in US resembles to this plan, but cash balance plan doesn't contain employee's contribution.

please guide me.

Thanks

[carrots]

Can you provide the benefit formula?

[Guest kishorActuary]

benefit formula is just 12% of monthly compensation, each month employee & employer both put contribution to fund. the rate of assured return on this contribution is 8.5% (on account balance as of BOY).

payout form is only lump-sum (on termination, death or retirement).

i am just concentrating on accounting of this plan. for valuating this plan there are two scenario

1. funds who retain their investment earning in excess of guranteed rate, and

2. fund who distribute their investment earning in excess of guranteed rate.

in case (1) whenever there is shortfall due to less returns than guranteed rate, employer has to make seperate contribution.

in case (2) surpluses could offset future shortfalls.

some of people suggest that, Black-Scholes model & stochastic models could be used.

will you please help me?

Thanks.