Data requirements depend on the benefits offered by a scheme; for example, if a benefit is defined in terms of length of employment, then date of joining the company will be an essential requirement.
Management’s planning and budgeting will influence the assumptions under which actuarial valuations are performed. Some examples include:
- Salary increase budgets; this would influence long-term assumed salary escalation
- Planned retrenchments; this could influence many aspects of the valuation, including turnover rates, discount and salary rates, cash-flow, expected investment returns and matching and rebalancing of assets for funded schemes
Basic background information regarding legal status of a scheme (separate entity or held on the company balance sheet) and whether it is funded (by separately earmarked assets in some manner) and if available for separate entities, the (audited) financial statements.
The actuary needs the scheme rules or the applicable labour law which defines the scheme benefits. For example, a minimum leaving service benefit defined by law, would be publicly known as statutory benefits. Therefore, if a company’s benefits replicate the statutory minimum, then it might be sufficient to simply advise the actuary of the applicable country. However, if a company offers more than the minimum required by law, then the scheme rules should be clearly communicated to the actuary.
Employees in some countries may also have developed expectations over many years for benefits not formally defined but generally paid by companies. Such benefit expectations may carry some weight in law or in society and should be valued. In countries where such expectations carry no weight, then the types of benefit or reasonable benefit expectations should be discussed with the actuary.
A thorough understanding, of the eligibility criteria and the circumstances under which benefits become payable, is critical to correctly valuing such benefits under IAS 19. When in doubt, disclose and discuss. Typical scheme information includes:
- Normal Retirement Age (“NRA”) for men and for women
- Retirement benefit; lump sums and/or regular pensions installments
- Resignation benefit; lump sums or transfers to other companies
- Retrenchment benefit; enhancements of lump sums or transfers
- In-service Death or Disability benefit; lump sums, pensions to dependents, insured benefits, if any
- Enhancements and special benefits for selected staff categories
Minimum information would consist of:
- Identifier, so that individual records can be identified and questioned in case of unusual data entries (employee name is never requested, for data protection purposes)
- Date of birth – age
Then, depending on the scheme benefits defined and offered:
- Date of joining company – length of service
- Salary – scheme salary as used to compute the benefits
- Staff category or nationality – if differing benefits apply to some staff categories or nationalities
- Advances made – prepayments of benefits, against benefits accrued to date
- Marital status and dependents – in case of certain benefits payable on death or disability
If the scheme is funded then information regarding the assets are required.
- Investment strategy and policy
- Assets held at start of year and end of year
- Valuations of those assets at start and end of year
- Purchases and sales during the year, including units, price, and proceeds or payments
- Income/interest/dividends/coupons/profits shares generated during the year
- Expenses incurred during the year, including those related to investment and administration