Actuarial valuation of long term benefit plans | Mercer 2019

Actuarial valuation of long term benefit plans | Mercer

Actuarial Valuation of Long Term Benefit Plans

Mercer is a leading global provider of actuarial and pension consulting services, and we have an established presence in the market to help you comply with all required financial information under the relevant standards. Entire actuarial team members have English-speaking capability besides Turkish and are supported by our Centres of Excellence. We are responsible for managing such work in Turkey, Eastern Europe and the Middle East. Mercer’s Istanbul Office is a Center of Expertise in the region where more than 200 companies are received service. Mercer can help you satisfy financial reporting requirements under and standards by performing a periodic actuarial valuation of your employee benefits, including:

  • End-of-service benefits
  • Long-service awards
  • Any other benefit plan classified as a defined benefit plan

WHAT IS AN ACTUARIAL VALUATION?

An actuarial valuation is an assessment of your future liabilities (as of the reporting date) calculated using an agreed set of forward-looking financial and demographic assumptions based on your company’s best estimates, preferably supported by historical data.

After an actuarial valuation, you will have insights into your:

  • Defined benefit obligation, which represents the sum of each eligible employee’s accrued liabilities, based on accrued service but using the projected salary at each potential future exit date
  • Service cost, which represents the sum of each eligible employee’s service cost, calculated as the present value of the employee’s benefit expected to accrue during the financial year
  • Interest cost, is the cost due to fact that at the end of the year the employee will be one year to closer to the retirement.

TREATMENTS OF EMPLOYEE BENEFITS

Short-term benefits

  • Typically, due within 12 months following the reporting date; e.g., wages, salaries, social security contributions
  • Recognised when employee has rendered service in exchange for benefits
  • No actuarial valuation required under standards

Post-employment benefits

  • Offered after employee leaves service; e.g., retirement benefits (pensions or end-of-service gratuities), post-employment medical care
  • Liability must be measured by actuarial methodology
  • Service cost and interest cost recorded in income statement (P&L)
  • Re-measurements due to changes in assumptions or experience adjustments reflected under OCI

Termination benefits

  • Payable as a result of termination of employment (initiated by employer)
  • Recognised as soon as employer can no longer withdraw offer of such benefits
  • No actuarial valuation required under standards

Other long-term benefits

  • Typically, due over a period beyond 12 months following reporting date; e.g., jubilee benefits, service awards, long-term disability benefits, end of service benefits
  • Same accounting treatment as post-employment benefits, except that re-measurements due to changes in assumptions or experience adjustments recognised in P&L rather than OCI

MERCER’S BEST-PRACTICE VALUATION PROCESS

Data

  • Collect and validate data
  • Reconcile membership data between two actuarial valuations
  • Provide employee data summaries

Assumptions

  • Analyse historical turnover and salary increase experience
  • Engage HR to gain better insight into HR strategies and future workforce changes
  • Recommend assumptions based on historical data analysis, discussions with the client and our experience in the region

Valuation

  • Perform actuarial valuation and generate results
  • Discuss results with HR and Finance
  • Provide training by hosting knowledge transfer sessions
  • Discuss results with the auditors

Report

  • Provide complete disclosure set
  • Support the transition from current to reporting standard
  • Submit a comprehensive actuarial valuation report that satisfies all actuarial and accounting reporting standards, signed by qualified actuaries
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