Business Glossary

technique used by actuaries to determine the periodic employer contribution to the pension plan; also called actuarial funding method. It is used to measure pension expense and related funding. Two general approaches are usually considered when selecting an actuarial funding method, the costapproach and benefit approach. The cost approach projects an estimated total retirement benefit and then determines the level cost that will be adequate (including expected interest) to furnish total benefits at retirement. The benefit approach determines the amount of pension benefits attribut-able to service to date and then determines the present value of these benefits.