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Comparative Analysis of Various Amortization Methods and Periods

Explore the comparison of different amortization methods and periods for unfunded liabilities. Learn about decreasing periods, level percentage of pay amortization, and total interest costs. Get insights into UAAL valuation and amortization periods.

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Comparative Analysis of Various Amortization Methods and Periods

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  1. Comparison of Different Amortization Methods and Periods Paul Angelo, FSA The Segal Company San Francisco 5061935v2

  2. Amortization of Unfunded Liability • FCERA uses multiple layers, decreasing periods to amortize UAAL as a level percentage of pay • Amortization periods: • UAAL through 6/30/03 valuation: 30 years(25 years remaining as of 6/30/08 valuation) • Actuarial gains/losses and assumption changes after 6/30/03 valuation: 15 years • Plan amendment: 30 years

  3. Amortization of Unfunded Liability • Total UAAL in 6/30/08 valuation: $618 million • About one-third ($212 million) is from 6/30/03 layer • Amortized over 25 years as of 6/30/08 valuation • The rest primarily amortized over 15-year layers • As with any amortization, the total interest cost payment for 6/30/03 layer depends on: • Method of amortization • Level dollar amount or level percent of pay amortization • Amortization period • Present value of future payments is the same

  4. Illustration of Amortization Methods ($000)

  5. Illustration of Amortization Methods ($000)

  6. Q U E S T I O N S

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