An Introduction to Pension Plan
The primary deliverables of a pension actuary firm include ensuring a client’s legal compliance, enumerating the employer’s liability for the specified pension plans and ascertaining the contributions to be dispensed to the plan. It provides an account of computations of pension plans to be remitted to its clientele of retirees.
There are basically three levels by which a standard pension plan valuation can be accomplished. They are:
- Elementary level
- Intermediate level
- Advanced level
In this level, the pension benefit is settled up in a simple manner that encompasses information about the age and retirement date of the beneficiary. The retirement age is considered at 65. The benefit is recompensed with a standard 5.5% interest rate. The vested and accrued pension benefit is paid after the attainment of the age of 65, on a monthly basis, as determined by the pension plan valuation based on the date of separation, credited service and average remuneration.
The aspects of the changing interest and mortality rates and their influence on the pension plan valuation are determined in this stage. Being aware of the fact that interest rates are inversely proportional to the present values is imperative. Assuming that a higher interest rate will reap higher pension benefits is fallacious. The pension plan valuation is done based on the plan’s underlying formula, years of service, average pay. However, the interest rate finds no place while defining a pension benefit plan.
This is applicable in case of more complex pension disbursement situations. They include voluntary or early retirement incentives, increase in the cost-of-living after retirement, terminated or retired employees, benefit forecasts and individual sign-off and acceptance of liability. The plan evaluator should be thoroughly cognizant of the involved time-frame and eligibility criteria of the employee’s spouse to avail the benefits.
CGC is a leading actuarial consultancy firm in India setting new standards and novel perspectives into disposition. Our pension plan actuary specialists can help you with all your queries and requirements.