Unit Credit measures the present value of benefit portions attributed through the valuation date. Normal cost reflects the attributed UC benefit allocated to the next year of participation.
UC attribution determines the portion of each benefit assigned through the valuation date. Each method develops the attributed benefit used in liability calculations and the one-year increase used in normal cost.
Accrual Proration – Formula
Evaluates the Benefit Formula at the valuation date and next valuation anniversary. The valuation-date benefit is used at each projected decrement date, and the one-year change supports normal cost. UC does not apply a separate Base Formula ratio.
Accrual Proration – Components
Applies the valuation-date Accrual Rate for each Formula Derived Item to its Benefit Base. The Benefit Base remains fixed while the Accrual Rate advances to the next valuation anniversary for the one-year increase.
Linear using Service Definition
Attributes the valuation-date benefit in proportion to the selected Service Definition through each projected decrement date. The one-year increase is the change in the benefit between the valuation date and next valuation anniversary.
- S(b)x, S(b)x+t
- are the selected Service Definition results at the valuation date and decrement age for benefit b.
- tp(τ)x
- is the probability that a participant aged x remains active for t years under all active decrements.
- q(d)x+t
- is the probability of decrement d at age x+t.
- vt
- is the discount factor from duration t back to the valuation date.
- PF(b)x+t
- is the value of the applicable Benefit Payment Form for benefit b at decrement age x+t.
- Δ BUC(b)x
- is the method-specific one-year benefit increase defined above and used for UC normal cost.
At-Risk Liability is calculated using assumptions defined by ERISA §303(i) and Internal Revenue Code §430(i). Participants already eligible at the valuation date are assumed to retire immediately during the year following the valuation year. Participants who become eligible within 10 years following the valuation year are assumed to retire on their first eligibility date.
Vested Liability applies the applicable valuation-date vesting fraction to each benefit before valuing liabilities using the unit credit methodology. In accounting results, this calculation yields the Vested Benefit Obligation.
- Vest(b)x
- is the vesting percentage for benefit b at the valuation date.