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What is an Actuarial Valuation?
An actuarial valuation is a mathematical analysis of the financial condition of a pension plan. This plan uses two types of valuation; solvency valuation and going concern valuation.
Why does the Plan have a valuation performed?
A valuation provides valuable information to the Board of Trustees concerning the “health” of the Plan. The number one question in proper administration is: are the contributions accumulating at a sufficient rate to fund the benefits promised to the Plan Members? The valuation is the major tool used to determine whether the monies available (assets) meet the actuarial liabilities of the Plan.
What are the Actuarial Liabilities?
The benefits payable to all beneficiaries of the Plan. The beneficiaries are all active plan members, deferred plan members and retired plan members or their beneficiaries. If the actuarial valuation shows the Plan does not have sufficient funds to cover all the benefits payable, the Plan is given a certain period of time to correct the situation. This may mean an increase in funding or a reduction in the benefits payable to the Members.
What does Solvency mean?
Solvency is a measure of the financial condition of a pension plan assuming the plan is wound up on a specific date. The solvency liabilities are determined assuming that all active plan members terminate employment on December 31st of the period being valued. Benefits would be paid to all plan members either through the payment of commuted values or the purchase of annuities. If the plan has a solvency deficiency (that is the assets are less than the solvency liabilities), then the pension regulations require that additional contributions be made to the plan to eliminate the solvency deficiency within 5 years or benefits be reduced. If the plan has a solvency surplus, then the benefits of all active, inactive and retired members would be paid in full if the plan was wound up.
What does Going Concern mean?
Solvency liability assumes the plan terminates, or is wound up, on a specific date. A going concern actuarial valuation is used to “value” the relationship been the plan’s assets and the benefits that have accumulated and will be accumulated in the future. In other words, the plan is “a going concern” and will continue indefinitely.
What is the Market Value of Assets?
Market value is the price at which the plan's assets would change hands if they were liquidated or the best estimate of what the assets are worth as assessed by independent experts.
An actuarial valuation is a mathematical analysis of the financial condition of a pension plan. This plan uses two types of valuation; solvency valuation and going concern valuation.
Why does the Plan have a valuation performed?
A valuation provides valuable information to the Board of Trustees concerning the “health” of the Plan. The number one question in proper administration is: are the contributions accumulating at a sufficient rate to fund the benefits promised to the Plan Members? The valuation is the major tool used to determine whether the monies available (assets) meet the actuarial liabilities of the Plan.
What are the Actuarial Liabilities?
The benefits payable to all beneficiaries of the Plan. The beneficiaries are all active plan members, deferred plan members and retired plan members or their beneficiaries. If the actuarial valuation shows the Plan does not have sufficient funds to cover all the benefits payable, the Plan is given a certain period of time to correct the situation. This may mean an increase in funding or a reduction in the benefits payable to the Members.
What does Solvency mean?
Solvency is a measure of the financial condition of a pension plan assuming the plan is wound up on a specific date. The solvency liabilities are determined assuming that all active plan members terminate employment on December 31st of the period being valued. Benefits would be paid to all plan members either through the payment of commuted values or the purchase of annuities. If the plan has a solvency deficiency (that is the assets are less than the solvency liabilities), then the pension regulations require that additional contributions be made to the plan to eliminate the solvency deficiency within 5 years or benefits be reduced. If the plan has a solvency surplus, then the benefits of all active, inactive and retired members would be paid in full if the plan was wound up.
What does Going Concern mean?
Solvency liability assumes the plan terminates, or is wound up, on a specific date. A going concern actuarial valuation is used to “value” the relationship been the plan’s assets and the benefits that have accumulated and will be accumulated in the future. In other words, the plan is “a going concern” and will continue indefinitely.
What is the Market Value of Assets?
Market value is the price at which the plan's assets would change hands if they were liquidated or the best estimate of what the assets are worth as assessed by independent experts.