Retirement Plan Consultant
Cetera Retirement Plan Specialists
Blue Ridge ESOP Associates
(Charlottesville VA / Telecommute)
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While studying our valuation report will not make you an expert on Japanese retirement plans and actuarial issues, it will provide a foundation for further study. It can also help you understand an expensive employee benefit that you may not be deriving full value from.
Our report has been designed to meet North American Generally Accepted Actuarial Principles. The person who signs it is a fully accredited American and Canadian actuary who is maintaining professional requirements through continuing education.
The following is our TOC (Table of Contents) with some explanation of why each item is there:
A. Purpose of assignment
Why are we doing this? This paragraph or two sets the stage for distant readers of the report. It helps assure everyone that the professional fees were spent with a purpose.
B. Limitations of this report
No one is perfect and we try to let you know where.
Who is the client? Why did we get involved? What work has been done in the past? This section tries to answer these and other questions.
Not everyone will read the entire report. Key conclusions are set out here for the person who looks in the introduction for conclusions and will read no further.
II. Retirement Allowance Plan
What benefits were valued in this exercise? Where did the recitation of benefits come from? All plans are complicated; this section sets out what we understand about the plan. If there are errors here, little else in the report is accurate, even though it may still be reliable.
A. Table 1; Benefit multiples
In numbers, what does this plan look like?
B. Figure 1; Benefit multiples
Graphically, what does this plan look like?
What are the permitted ways of saving for future benefits in Japan? From a general point of view, what does each entail, what does it cost and what does it mean?
A. Book Reserves versus TQPP
A quick lesson in why a plan sponsor may decide to use an external funding vehicle to fund future benefits.
B. Industry Plans (EPF)
Getting out of Japanese Social Security.
IV. Employee Data
"Where did the data come from?" and "when did we get it?" are among the questions answered here. The tables permit an external audit of the data used for the plan to see if it was valid. It also permits an another actuary to make a rough determination of present values to verify the accuracy of the work. As with the plan description, if the data is wrong, nothing else will be accurate, even if it is reliable.
The following are the age/service charts typically provided:A. Male Employees
B. Female Employees
C. All Employees
V. Actuarial Methods and Assumptions
No report ever shows all of the assumptions used in the calculations; most, like basic rounding rules, are not very material actuarially anyway. However, who the report is written for, economic assumptions, and decrements must be identified. The other part of the title, methods, describes the variation of Projected Unit Credit used to develop the Projected Benefit Obligation and Net Periodic Pension Cost. Many Japanese plans require the use of Pro-rata attribution, some require accrual and many of the others are indifferent. However, the report should disclose which approach was used.
A. Figure 2; Male Survivors
This graph answers the question "about how many new hires will reach retirement?" for males.
B. Figure 3; Female Survivors
This graph answers the question "about how many new hires will reach retirement?" for females.
VI. Valuation Results & Certification
This section provides the numbers. We have refined it as experience with our clients has demanded, adding, deleting and improving.
The current year Net Periodic Pension Cost (NPPC) is the reason. All of the supporting numbers, including those needed to project to the end of the period are provided. Carefully designed columns and shading techniques differentiate the numbers for other actuaries from the numbers the client and his advisors need. If you want to look further than the conclusions, but not too far, read this page also.
The numbers in the summary mean something and are related to other numbers. This section provides that information. Textual in nature, the numbers for the client are exposed and described.
C. Reconciliation of Funded Status as of Prior Year-end
This table develops the Gain & Loss for use in the summary. The ideal situation would have the client using this in his reconciliation of funded status for the prior year.
D. Reconciliation of Funded Status as of Current Year-end
This table projects to the end of the current year under the actuarial assumptions. Most of the numbers can be cross-checked against the summary table.
E. Estimated 1997 Net Periodic Pension Cost
To help with budgeting for the next year, our standard report provides a projected Net Periodic Pension Cost assuming all actuarial assumptions are exactly realized.
This is where our actuary attests that the numbers have been determined rigorously. Remember, if an actuary does not sign the report, it is not an actuarial report. And, while FAS 87 permits an unqualified person to sign a report of present values to be used for FAS 87, an actuary subject to North American discipline standards must be qualified to do so or he is not permitted to sign the report.
VII. FAS 87
A primer for those who would like to understand a little more about FAS 87. It's not complete and some of the simplifying shortcuts may be misleading, but it should help in developing an overview of what the exercise was all about.
B. Net Periodic Pension Cost
C. Key Issues
Some readers expect to find conclusions at the end of the report. This section is for them.
You have been reading the online edition of LIA $FACTS$, the monthly fax newsletter of Lohmann International Associates. For further information, please visit our home page on the Web or send e-mail to Les Lohmann.