ACTUARIAL COST METHOD
A method employed by actuaries for the calculation of the periodic amount that a company has to pay for the coverage of the pension expenses. The two primary method employed are the benefit approach and the cost approach.
The total final benefits, which are based on several assumptions like the rate of wage increase and date of retirement of the employees, are calculated on the cost approach. The amount of funds needed for the future benefits are also determined. Meanwhile, the benefit approach determines the future benefits' present value by means of discounting them.
Sometimes referred to as actuarial funding method.
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