Comparison of entry age normal and projected unit credit method for funding of defined benefit pension plan

In this modern age, the quality of life of a person is always improving. This leads to longer lifespans, hence resulting in a longer pension period for that individual. Pension programs are therefore needed more than ever so that a person can receive a benefit after they retire and maintain the same quality of life they had before they retired. The topic of this paper is comparing the entry age normal and projected unit credit method for funding of a defined benefit pension plan. The entry age normal method uses the concept of projecting the benefit that will be earned at the end of an employee’s career. The projected unit credit method uses the concept of benefits accrued to the date of normal cost determination. From the data simulation it can be concluded that the projected unit credit method results in a smaller normal cost compared to the entry age normal method and the projected unit credit method results in a greater actuarial liability compared to the entry age normal method.