DEFINITION of 'Actuarial Basis Of Accounting'

A method used in computing the periodic payments that a company must make to fund its employee pension benefits. The actuarial basis stipulates that total contributions from the company plus investment returns on pension assets must match the required annual contribution from the pension fund. Assumptions must be made for the length of workers' careers, the rate of return on plan assets, the rate of salary increases and the discount rate used for future benefits.

BREAKING DOWN 'Actuarial Basis Of Accounting'

This method follows the basic premise of any actuarial process in that costs and benefits must be equal. Accounting for pensions involves assumptions on both sides of the equation. When reviewing a company's financial statements investors should note whether the company is being aggressive or conservative in these assumptions. For example, if a company uses a very high rate of return on its plan assets, this will reduce the current costs to fund its pension plan.

Information on pension contributions and assets can be found in company's quarterly and annual reports to the Securities and Exchange Commission.

RELATED TERMS
  1. Actuarial Cost Method

    A method used by actuaries to calculate the amount a company ...
  2. Actuarial Gain Or Loss

    Gain or loss arising from the difference between estimates and ...
  3. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
  4. Pension Adjustment Reversal - PAR

    A numerical calculation in certain Canadian pension plans that ...
  5. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  6. Pension Option

    A set of options that a pensioner has in regard to the handling ...
Related Articles
  1. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  2. Retirement

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  3. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  4. Financial Advisor

    How to Advise Clients with Frozen Pensions

    Financial advisors are on the front line in advising clients impacted by a frozen pension. Here's what they need to consider.
  5. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  6. Retirement

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  7. Financial Advisor

    Pension Advances: What You Should Be Wary Of

    The terms some pension advance firms require can be costly. Here's how to be sure your clients aren't making bad decisions.
  8. Retirement

    Watch Out for These Hidden Pension Fees

    You’re not likely to even detect pension fees unless a pension fund puts them in disclosure documents. But more recipients are beginning to ask questions.
  9. Retirement

    Here’s How to Find a Lost Pension

    To find a lost pension, you have to figure out who is now responsible for paying it and how to claim your benefits.
  10. Retirement

    Chipping Away At The Pension Freeze Trend

    Learn five steps that'll put your retirement back into your own hands.
RELATED FAQS
  1. Are Canadian Pension Plans inflation-protected?

    Learn about the Canada Pension Plan and how it adjusts its contributions and benefits each year for changes in inflation ... Read Answer >>
Hot Definitions
  1. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  2. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  3. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  4. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  5. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  6. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
Trading Center