Chapter 3 The DB Valuation Challenge

In our discussion of defined benefit plans we will return again and again to the issue of how the DB benefit is to be valued.

The issue is critical to determining ERISA funding, funded status and minimum funding requirements. You need to know what plan liabilities are worth, today, to determine how underfunded a plan is, and thus how much more the sponsor must contribute to it. The amount of underfunding will also affect PBGC variable-rate premiums—a major ongoing cost of maintaining an underfunded DB plan.3

Benefit/liability valuation is also critical to financial disclosure. It determines the sponsor’s net (assets minus liabilities) pension obligation disclosed on the company’s balance sheet and, even more ...

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