FASB - Expected Distributions In Expense

[Andy the Actuary]

In determining expense under FASB, the expected return and interest expense generally include postulating expected benefit distributions during the year. Suppose the assumption is that the plan always distributes benefits in a lump sum and further, that active participants over the normal retirement age are assumed to retire on the valuation date. In such case, the expected distributions would include expected lump sums. Suppose, there is an active big guy over normal retirement age who if the lump sum were paid would trigger FASB88.

Does it make sense to include this lump sum in the expected distributions? Thus, only enter the expense determination if the big guy retired and received a lump sum distribution. Or, is the treatment no different from any other distribution?

Perhaps, the assumption should be retires one year later?

[david rigby]

AtA is definitely on the right track. There may be more than one valid approach.

In my experience, if FAS88 is involved, it's time to discuss with the auditor, since the date of recognition might be flexible. If the auditor wants to recognize the FAS88 event at BOY, I suggest you do it first, and then determine the expense for the rest of the year (ie, you have already subtracted that retiree from both assets and liabilities). A prudent alternative might also consider whether more lump sums are expected during the year, so that the auditor gets to decide whether they should be combined into one FAS88 event. Just from a viewpoint of practicality.

The retirement assumption at BOY vs. EOY is intriguing. Might be a reasonable time to ask if the BOY assumption is valid.

[Andy the Actuary]

The retirement assumption at BOY vs. EOY is intriguing. Might be a reasonable time to ask if the BOY assumption is valid.

Have seen the assumption imposed frequently. Yet, since the employee was reported as active BoY, then the assumption must de facto be an "implicit" assumption and perhaps, should be reconsidered.

What have others seen where no retirement rates are imposed past normal retirement age?