ASOP 4
(MEASURING PENSION OBLIGATIONS AND DETERMINING PENSION PLAN COSTS OR CONTRIBUTIONS)
SECTION 2
(DEFINITIONS)

Section 2
Definitions

ASOP 4 | §2.0 | INTRO TO SECTION 2

The terms below are defined for use in this actuarial standard of practice and appear in bold throughout the ASOP.

ASOP 4 | §2.1 | ACTUARIAL ACCRUED LIABILITY

The portion of the actuarial present value of projected benefits (and expenses, if applicable), as determined under a particular actuarial cost method that is not provided for by future normal costs. Under certain actuarial cost methods, the actuarial accrued liability is dependent upon the actuarial value of assets.

ASOP 4 | §2.2 | ACTUARIAL COST METHOD

A procedure for allocating the actuarial present value of projected benefits (and expenses, if applicable) to time periods, usually in the form of a normal cost and an actuarial accrued liability. For purposes of this standard, a pay-as-you-go method is not considered to be an actuarial cost method.

ASOP 4 | §2.3 | ACTUARIAL PRESENT VALUE

The discounted value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of assumptions with regard to future events, observations of market or other valuation data, or a combination of assumptions and observations.

ASOP 4 | §2.4 | ACTUARIAL PRESENT VALUE OF PROJECTED BENEFITS

The actuarial present value of benefits that are expected to be paid in the future, taking into account the effect of such items as future service, advancement in age, and anticipated future compensation (sometimes referred to as the “present value of future benefits”).

ASOP 4 | §2.5 | ACTUARIAL VALUATION

The measurement of relevant pension obligations and, when applicable, the determination of periodic costs or actuarially determined contributions.

ASOP 4 | §2.6 | ACTUARIALLY DETERMINED CONTRIBUTION

A potential payment to the plan as determined by the actuary using a contribution allocation procedure. It may or may not be the amount actually paid by the plan sponsor or other contributing entity.

ASOP 4 | §2.7 | AMORTIZATION METHOD

A method under a contribution allocation procedure or cost allocation procedure for determining the amount, timing, and pattern of recognition of the unfunded actuarial accrued liability.

ASOP 4 | §2.8 | CONTRIBUTION ALLOCATION PROCEDURE

A procedure that determines one or more actuarially determined contributions for a plan. The procedure uses an actuarial cost method and may use an asset valuation method, an amortization method, or an output smoothing method. The procedure may produce a single value, such as normal cost plus an amortization payment of the unfunded actuarial accrued liability, or a range of values, such as the range from the ERISA minimum required contribution to the maximum taxdeductible amount.

ASOP 4 | §2.9 | COST ALLOCATION PROCEDURE

A procedure that determines the periodic cost for a plan (for example, the procedure to determine the net periodic pension cost under accounting standards). The procedure uses an actuarial cost method, and may use an asset valuation method or an amortization method.

ASOP 4 | §2.10 | EXPENSES

Administrative or investment fees or other payments borne or expected to be borne by the plan.

ASOP 4 | §2.11 | FUNDED STATUS

Any comparison of a particular measure of plan assets to a particular measure of pension obligations.

ASOP 4 | §2.12 | FUNDING VALUATION

A measurement of pension obligations or projection of cash flows performed by the actuary intended to be used by the principal to determine plan contributions or to evaluate the adequacy of specified contribution levels to support benefit provisions.

ASOP 4 | §2.13 | GAIN AND LOSS ANALYSIS

An analysis of the effect on the plan’s funded status between two measurement dates resulting from the difference between expected experience based upon a set of assumptions and actual experience.

ASOP 4 | §2.14 | IMMEDIATE GAIN ACTUARIAL COST METHOD

An actuarial cost method under which actuarial gains and losses are included as part of the unfunded actuarial accrued liability of the pension plan, rather than as part of the normal cost of the plan.

ASOP 4 | §2.15 | MARKET-CONSISTENT PRESENT VALUE

An actuarial present value that is estimated to be consistent with the price at which benefits that are expected to be paid in the future would trade in an open market between a knowledgeable seller and a knowledgeable buyer. The existence of a deep and liquid market for pension cash flows or for entire pension plans is not a prerequisite for this present value measurement.

ASOP 4 | §2.16 | MEASUREMENT DATE

The date as of which the values of the pension obligations and, if applicable, assets are determined.

ASOP 4 | §2.17 | NORMAL COST

The portion of the actuarial present value of projected benefits (and expenses, if applicable) that is allocated to a period, typically twelve months, under the actuarial cost method. Under certain actuarial cost methods, the normal cost is dependent upon the actuarial value of assets.

ASOP 4 | §2.18 | OUTPUT SMOOTHING METHOD

A method to reduce volatility of the results of a contribution allocation procedure. The output smoothing method may be a component of the contribution allocation procedure or may be applied to the results of a contribution allocation procedure. Output smoothing methods include techniques such as

1) phasing in the impact of assumption changes on contributions,

2) blending a prior valuation with a subsequent valuation to determine contributions, or

3) placing a corridor around changes in the dollar amount, contribution rate, or percentage change in contributions from year to year.

An output smoothing method may involve a combination of techniques. For purposes of this standard, an asset valuation method is not an output smoothing method.

ASOP 4 | §2.19 | PARTICIPANT

An individual who satisfies the requirements for participation in the plan.

ASOP 4 | §2.20 | PERIODIC COST

The amount assigned to a period using a cost allocation procedure for purposes other than funding. This may be a function of pension obligations, normal cost, expenses, or assets. In many situations, periodic cost is determined for accounting purposes.

ASOP 4 | §2.21 | PLAN PROVISIONS

The relevant terms of the plan document and any relevant administrative practices known to the actuary.

ASOP 4 | §2.22 | PRESCRIBED ASSUMPTION OR METHOD SET BY ANOTHER PARTY

A specific assumption or method that is selected by another party, to the extent that law, regulation, or accounting standards gives the other party responsibility for selecting such an assumption or method. For this purpose, an assumption or method set by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is deemed to be a prescribed assumption or method set by another party.

ASOP 4 | §2.23 | PRESCRIBED ASSUMPTION OR METHOD SET BY LAW

A specific assumption or method that is mandated or that is selected from a specified range or set of assumptions or methods that is deemed to be acceptable by applicable law (statutes, regulations, or other legally binding authority). For this purpose, an assumption or method set by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is not deemed to be a prescribed assumption or method set by law.

ASOP 4 | §2.24 | SPREAD GAIN ACTUARIAL COST METHOD

An actuarial cost method under which actuarial gains and losses are included as part of the current and future normal costs of the plan.