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Simple English definitions for legal terms
actuarial surplus
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A quick definition of actuarial surplus:
Actuarial Surplus: This is a guess of how much extra money a pension plan has compared to how much money it needs to pay for all the benefits it promised to give in the future. It's like having more money in your piggy bank than you need to buy all the toys you want.
A more thorough explanation:
Actuarial surplus is an estimate of the excess amount of money a pension plan has in its assets compared to its expected current and future liabilities. This includes the amount of money needed to fund future benefit payments.
For example, if a pension plan has $10 million in assets and its expected liabilities are $8 million, then the actuarial surplus would be $2 million. This means that the plan has more than enough money to cover its current and future obligations.
Another example would be if a pension plan has $15 million in assets and its expected liabilities are $20 million. In this case, the plan would have an actuarial deficit of $5 million, meaning it does not have enough money to cover its future obligations.
Actuarial surplus is important because it helps pension plan administrators determine if they have enough money to cover their obligations to plan participants. If a plan has an actuarial surplus, it may be able to offer additional benefits or reduce contributions from plan participants. On the other hand, if a plan has an actuarial deficit, it may need to increase contributions or reduce benefits to ensure it can meet its obligations.