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Thread: PPA 2006 'Target Normal Cost'

  1. #1
    Actuary.com - Newbie Poster
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    Post PPA 2006 'Target Normal Cost'

    I'm a non-actuary trying to interpret the 2006 Pension Protection Act. The question is basically how to interpret 'Target Normal Cost' as defined in the act. I'm looking for the closest parallel in the company's 10K. Can I interpret it as a form of 'Service Cost' or is it more akin to 'Service Cost + Interest Cost'? Thanks.

  2. #2
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    Quote Originally Posted by PPA2006 View Post
    I'm a non-actuary trying to interpret the 2006 Pension Protection Act. The question is basically how to interpret 'Target Normal Cost' as defined in the act. I'm looking for the closest parallel in the company's 10K. Can I interpret it as a form of 'Service Cost' or is it more akin to 'Service Cost + Interest Cost'? Thanks.
    Hello,

    The Target Normal Cost means the expected increase in the Liability of a pension plan due to increase in the benefits/compensation. Lets assum that we are valuing the plan for the year 2009 based on the all the plan provisions and if a members 10 yrs of service and pay $12,000 say. If the liability for the same say $10,000.

    For the next year he will accrue one year of service and there will be a increase in the pay as well and say the liability calculated for the years 2010 is $10500 then theTarget normal cost for that individual members is $500.

    If you add up the normal cost of all the members then you will get the "Target Normal Cost" of the plan.

    Morever, there are some plans which are frozen. This means that there will not be any increase in the service and pay, so there won't any normal cost.
    Thanks,

    Dev...

  3. #3
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    Exclamation Stability of Defined Benefit Plans in long run.

    Hi All,

    Could you please comment on the stability of DB plans in a long run? Do you think that DB plan will be over and all the plan that will come into complete picture will be DC? Thus determine the scope of both types in near future.
    Thanks,

    Dev...

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