What are actuarial valuations?
An actuarial valuation is an analysis performed by an actuary that compares the assets and liabilities of a pension plan. Actuarial valuations are necessary to assess the long-term sustainability of a defined benefit pension plan and can serve as a decision-making tool for plan sponsors.
Why is the actuarial valuation needed?
The key purpose of an actuarial valuation is to inform plan sponsors of the amount that needs to be contributed each year to adequately fund benefits. Consequently, the first action step is to take appropriate steps to ensure that actuarially determined contributions are faithfully paid to the plan each year.
Who can do actuarial valuation?
Actuarial valuations are required at the end of every accounting period for the purpose of preparation of financial statements. This is required by all enterprises, if AS 15 or Ind AS 19 is applicable, whether fully or partially.
Is it compulsory to get actuarial valuation?
What are the assumptions of actuarial valuations?
The assumptions are based on a mix of statistical studies and experienced judgment. Since assumptions are often derived from long-term data, unusual short-term conditions or unanticipated trends can occasionally cause deviations from forecasts. Actuarial valuations are used to assess the funded status of a defined-benefit pension fund.
What is the difference between market value and actuarial value?
Unlike market values, actuarial values rely on statistical inference and assumptions that are plugged into a model. Actuarial models rely on long-term projections that include interest rates, demographic changes, and inflation. Many variables go into an actuarial valuation model.
How does the valuation of trust assets affect a defined benefit plan?
In a defined benefit plan, the valuation of trust assets will determine if the plan is adequately funded and if the plan’s funding assumptions are reasonable. This, in turn, will affect the employer’s deduction and funding status.