A pension plan administrator promises certain benefits in the future in exchange for labor today. In order to budget for this expense and create more security for the participant, the administrator uses a pension cost method. Each cost method assigns a portion of the future liability to the current year. This is called the normal cost. We calculate the normal cost under three cost methods using different annuity, interest and inflation assumptions. Then we make comparisons between cost methods as well as between assumption changes. The cost methods considered in this paper are the unit credit cost method, projected unit credit cost method, and the entry age cost method. Both the constant dollar and the constant percent versions of the entry age cost method are considered.
College and Department
Physical and Mathematical Sciences; Mathematics
BYU ScholarsArchive Citation
Grizzle, Linda S., "Three Pension Cost Methods under Varying Assumptions" (2005). All Theses and Dissertations. 543.
pension plan, pension fund, cost method, normal cost, actuarial liability, unit credit, projected unit credit, entry age