Entry Age Normal Liability and Normal Cost
Entry Age Normal (EAN) distributes projected benefits at a constant level over the selected funding period. The method can be set as a fixed percentage of pay or a fixed annual dollar amount.
Level percentage of pay
The level percentage-of-pay method develops a constant normal cost rate at the selected entry/funding age. Liability is the present value of future benefits less the present value of future normal costs.
EAN rate
- πe
- is the level percentage-of-pay EAN rate developed at entry/funding age e.
- PVFBe
- is the present value of future benefits at entry/funding age e.
- PVFSe
- is the present value of future earnings at entry/funding age e.
Liability
- PVFBx
- is the present value of future benefits at the valuation date.
- PVFSx
- is the present value of future earnings at the valuation date.
Normal cost
- Earningsx
- is earnings at the valuation date.
Level dollar
The level dollar method develops a constant annual normal cost at the selected entry/funding age. PV Service represents the discounted active-service units over the funding period. Liability is the present value of future benefits less the present value of future normal costs.
Annual cost
- Annual Coste
- is the level annual dollar cost developed at entry/funding age e.
- PVFBe
- is the present value of future benefits at entry/funding age e.
- PV Servicee
- is the present value of future service at entry/funding age e.
Liability
- PVFBx
- is the present value of future benefits at the valuation date.
- PV Servicex
- is the present value of future service at the valuation date.
Normal cost
Under the level-dollar method, normal cost equals the annual cost developed at the entry/funding age.
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