Nature of Actuarial Funding
Actuarial funding is a mechanism for:
Determining the magnitude of pension liabilities previously undertaken by a defined benefit pension plan;
Comparing the current pension plan assets reserved for pension purposes with the accrued pension liabilities amassed by a defined benefit pension plan; and
Assessing the adequacy of total annual contribution support to meet the total annual funding requirements of a defined benefit pension plan.
Actuarial funding differs from non-actuarial pension funding, which is typically represented by current disbursements (pay-as-you-go) funding, as used by the Social Security System historically.
Many different actuarial funding methods exist and were developed primarily to meet the budgetary needs of a plan sponsor.
Minnesota utilizes the Entry Age Actuarial Cost Method (or Entry Age Normal Cost Actuarial Cost Method), which emphasizes the determination of a level actuarial cost as a percentage of covered payroll over a plan member's working career.
Minnesota actuarial reporting produces:
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Actuarial Accrued Liability |
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Assets |
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Funding Requirement |