The projected unit credit method

Learning objectives

• Explain the principle of the method: one unit of benefit per period of service, projected and discounted.L2
• Calculate the present value of the portion of benefit attributed to service rendered from the data of a case.L3

Normative references

• IAS 19 §67An entity uses the projected unit credit method to determine the present value of the obligation, the current service cost and, where applicable, past service cost; para. 68 describes it: each period of service gives rise to an additional unit of benefit entitlement, and each unit is measured separately to build up the final obligation.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Which sentence correctly describes the projected unit credit method used to measure the obligation of a defined benefit plan?L2
• A trainee describes how he measures the obligation of a defined benefit plan for an employee with ten years of service, who will retire in twenty years. Which of his steps is wrong?L2
• According to the case actuary's data, an employee of Dalmont SA will receive in {years_to_retirement}, on retirement, a projected lump sum of {projected_benefit} (projected final salary included). Twelve years of service out of thirty have been rendered at the measurement date, that is {attribution_percent} of total service. As a teaching assumption of the case, the benefit is attributed on a straight-line basis to years of service; no leaving or death before retirement is assumed, and the discount rate is {rate} (case data). Calculate the benefit attributed to services rendered, then its present value.L3