Projected unit credit method
The term projected unit credit method and the projected unit credit method refers to an actuarial assessment procedures for obligations arising from occupational pension schemes , the international accounting standard IAS 19 and in many foreign accounting standards such as 87 FAS ( US GAAP ) and FRS 17 ( UK GAAP required) is. Since the Accounting Law Modernization Act (BilMoG), this procedure has also been increasingly used under commercial law (in some cases it is even stipulated below).
In contrast, the entry age method is used for the pension provisions in the tax balance sheet . This procedure can also be used for commercial law.
With the projected unit credit method, only that part of the obligation that has already been earned is valued on each valuation date. The present value of the earned part of the obligation is called Defined Benefit Obligation ( DBO for short ) or - according to FAS 87 - Projected Benefit Obligation ( PBO for short ). The portion of the obligation that will be earned over the next year is also valued and referred to as the service cost . In addition, interest cost (interest expense) and expected payments (expected benefits) are determined for the following year .
The interest cost is the increase in the obligation based only on the interest. The interest bearer is the DBO at the beginning of the year. The expected payments are deducted, each weighted with the fraction of the year for which they are no longer available as interest carriers. In the case of pension payments, this corresponds to around half of the annual pension.
If you continue the DBO by increasing the service cost and interest cost and subtract the expected payments , you get an estimate for the DBO for the next year's valuation date. Deviations only result from so-called actuarial gains or losses or from special effects such as reductions in benefits.