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sir this is absolutely confusing.
on one hand we say that benefits paid out, has no overall impact on the net deficit/surplus over a reporting period, as reduction in PV of obligation settled will be same as reduction in FV of assets used to settle the liability. Which is quite intuitive and understandable.
However, one case of settlement(upon redundancy) mentioned in my study text, shows a loss on settlement of $0.1m, where the amount paid for settlement was more than the PV of obligation. HOW on the earth is this possible?????? Could you give an example, sir?
When the plan pays out regular benefits there is no change in the net deficit or surplus.
If there is some kind of redundancy or settlement this is not a regular benefit in this case there may be a difference between the liability do an employee and what we actually have to pay them. This may course there to be charge or credit in the PL.
okay understood your point, but why in case of an irregular event like redundancy could lead to a settlement gain/loss? could you mention 1or2 examples or reasons?
The settlement paid to staff is a matter of negotiation.
Imagine that the actuary says the liability is 10. It’s a theoretical number because no one knows how long the staff will live for. The employer says to the staff – here is 8: take it or leave it.
So, there will be a gain of 2.
Haha Hobson’s choice at work! really love the way you explain! Thank you sir.
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