Hi all. So under Liability Driven Investing, CFAI uses a defined benefit plan as an example to illustrate how to deal with type IV liabilities. Earlier in the reading they gave this as Type II liability since you can project the amount using actuarial science. Is it a Type II or a Type IV liability?
My second question is on the Projected Benefits Obligation Formula. For the annuity, It only uses the period for vesting( G years). Shouldn’t it be the total years worked (G + T) years?
Thanks.
Projecting isn’t the same as knowing.
Yes, or am I confusing the type of policy they are giving as Type II? The sum assured for life assurance is usually known. The retirement policy (the one they’ve given as an example) however has several unknown variables (e.g., how long you’ll live after retirement) that can affect the retirement benefit amounts.
Edit: Not very sure whether this interpretation is correct but i will just go with what the curriculum says. Will ignore what happens in practice.