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Mr. Daskais opined that, if the funding method used to
calculate the reserve computes an accrued liability, that liability
must be amortized. In Mr. Daskais’s opinion, since there are no
specific amortization rules applicable to the funding of
postretirement medical benefits in section 419A or in the income
tax regulations, the amortization rules applicable to pensions
should be applied.
Mr. Daskais calculated the contribution limit by applying the
entry age normal cost method and by using the same facts and
assumptions Mercer used. He amortized the accrued liability over
the present value of the remaining working lives of the active
employees. Under these computations, he determined that the
maximum contributions (dollars in millions; discrepancies
attributable to rounding) for 1991-94 were as follows:
1991 1992 1993 1994
A. Investment return 5.5% 4.9% 3.6% 3.6%
B. Present value accrued benefits
a. Active $13.4 $38.5 $62.9 $83.6
b. Retired 26.3 36.7 47.7 48.9
c. Total 39.7 75.2 110.6 132.5
C. Accrued liability
a. Active 11.3 28.7 44.7 59.4
b. Retired 26.3 36.7 47.7 48.9
c. Total 37.6 65.4 92.4 108.3
D. Normal cost 0.3 1.2 2.5 3.3
E. Average present value of future service 4.81 6.63 7.26 7.19
F. Amortized accrued liability from prior
years1 --- 8.6 15.5 25.5
G. Remaining unamortized accrued liability2 37.6 56.8 76.9 82.8
H. Amortization of accrued liability3 7.8 8.6 10.6 11.5
I. Account limit (beginning of year)4 8.1 18.3 28.6 40.3
J. Interest to yearend 0.4 0.9 1.0 1.5
K. Account limit (yearend)5 8.6 19.2 29.7 41.7
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