TNC for frozen plan with life insurance

[carrots]

I have a small DB plan where the benefits were frozen in 2007. There are no more benefit accruals, but there are still life insurance premiums to be paid.

For the plan year starting in 2008, is the TNC equal to $0, or is it equal to the term cost of the insurance?

[Guest Deflector]

My computer software was adding in the term costs for 2008. I am not sure if that means that it is required, but I was planning on adding it in.

This is assuming that your assets are not greater than your FT + TNC + Term Cost.

[Effen]

I believe all we know for sure is the TNC should reflect the cost of the death benefit. This is most likley not equal to the premium.

If you search, you should find some relatively recent threads about this.

[SoCalActuary]

I believe all we know for sure is the TNC should reflect the cost of the death benefit. This is most likley not equal to the premium.

If you search, you should find some relatively recent threads about this.

I think the distinction between FT and TNC is divided differently than this. You need to consider that the life insurance benefit is not related to the length of past service or current service. The life policy is issued and the death benefit is provided effectively at the time of purchase until it is modified. Now don't ask me to agree that the treatment I am about to describe is reasonable or even logical, but that entire death benefit goes into the TNC in the year it is issued, and in all future years it is a part of the FT.

The FT should show the present value of all future death benefit payments expected in the plan for benefits already earned. The life insurance benefit is usually similar to 100x projected benefit, and does not depend on new service each year, so it is earned as soon as it is issued. You would look at the life insurance net death benefit payable above the PVAB for each future year, determine the probability of the death benefit being paid, and then discount those future payments at the tiered interest rates in your valuation. This is similar in insurance terminology to a decreasing term life policy that expires at NRA. But the current cost is the single sum value of that entire policy for the entire period.

If a policy has to be increased under the terms of the plan, or a new policy issued, then you do the same analysis of future death benefits arising from that new benefit accrual. Those future death benefits arose in the current year, and are attributed to the TNC.