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(ii) Reserve Actuarially Determined on a Level
Basis
We now turn our attention to the requirement that the reserve
under section 419A(c)(2) be “actuarially determined on a level
basis” and the calculation of the reserve. We have held that the
term “reserve” in section 419A(c)(2) refers to assets in an amount
necessary to satisfy the employer’s liability to pay the covered
employees’ postretirement medical benefits when the benefits become
due.
Petitioners assert that “level”, as an actuarial concept,
refers to normal cost and that, to an actuary, “level” means that
the normal costs are level. Normal cost is that portion of the
present value of the benefit that is assigned to the current or a
future year. In other words, the value of the benefit assigned to
the current year is the same as the amount assigned to each
subsequent year until the employee’s retirement date. Petitioners
further assert that the actuarial concept of level is unrelated to
the employer’s actual contributions to a plan and that actuarial
methods determine amounts that can be contributed but do not
mandate funding.
Petitioners acknowledge that both the aggregate and entry age
normal cost methods produce level normal costs. Petitioners
assert, however, that the aggregate cost method is not appropriate
because it does not directly calculate the accrued liability
independently of the assets.
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