Expected Outflows for FAS 87/132/158

[dmb]

For the FAS 87/132/158 ASC Topic 715 disclosure, specifically the 10 year estimated expected emerging liabilities, other than the retirement benefit, should other decrements be included when valuing benefits. For actuarial valuation purposes, we only use the retirement benefit. Sorry if i'm not phrasing this question ideally, but all responses are greatly appreciated. Thanks.

[Effen]

You should show all expected benefit payments. If your assumption is that only retirement benefits will be paid, then that is all you should have in the expected payments.

One might question if "retirement only" is a reasonable assumption, but that is a different discussion.

[dmb]

Thanks. I guess my next question then is whether or not there is a requirement to use other decrements or is it an assumption up to the actuary? And would including the death benefit be a reasonable assumption? Thanks.

[Effen]

Actuaries are held to various professional standards, so when you say "requirement", we are required to use "reasonable" assumptions.

It is typical that small / tax shelter plans typically ignore non-retirement benefits. However, the larger or traditional retirement plans would typically have more explicit assumptions. Larger plans typically provide termination benefits, disability benefits, death benefits - all of these would have a probability assigned and a benefit valued.

Tax shelter plans typically don't provide disability benefits, and typically assume no one will terminate or die prior to retirement. This is fairly common practice justified by administrative simplicity.

The fact that you are trying to do an FASB valuation tells me it is most likely not a tax shelter situation and therefore, the actuary should review the plan provisions and determine if it is reasonable to ignore the non-retirement benefits. If the plan pays disability benefits, termination benefits, pre-retirement death benefits, those should most likely be explicitly recognized.

Also, no offence intended, but if you are an actuary, and are asking these questions, you should also consider having a more experienced person peer review your accounting work.

[dmb]

I appreciate the responses, no offense taken. I am an actuary and sometimes I just want to make sure i'm not missing anything, especially regarding the accounting rules and also to try to get a feel for what others are doing. Thanks again.

[My 2 cents]

Isn't the disclosure just supposed to show how much is expected to be paid, with no need to "value" the benefits? I would imagine that best practice would be to calculate the cash flow using whatever decrements are relevant and with any resulting benefits being included. You calculate a cash flow when preparing the Funding Target, right? Do the same thing for the ASC-715 work. Assuming your valuation software would allow you access to the anticipated cash flow, it should not require much of any extra work to prepare that disclosure.

The original post used the term "emerging liabilities", but the disclosure just asks for the anticipated cash flow (at least that is what we think is being requested).