Understanding The Projected Unit Credit Method

The Projected Unit Credit (PUC) is the most common actuarial cost methodology for valuing the obligations and expenses of retirement plans that are under Defined Benefit programs in the Philippines. The PUC method determines each individual’s projected benefits up to the valuation year using a consistent formula.

The PUC method, also known as the accrued benefit method pro-rated on service, considers each period of service to be an additional unit of benefit eligibility, with each unit being measured independently to determine the final obligation. Furthermore, this methodology tells an entity how much post-employment benefits are related to the current and prior periods and generates estimates based on actuarial assumptions such as demographic variables (turnover, mortality, and disability) and financial variables (future salary increases and discounting factor). Since an individual’s retirement would still take some time, the discounting factor is used to calculate the present value of the defined benefit obligation and the current service cost. 

The PUC Method shall be used to determine the entity’s post-employment benefit (known as the defined benefit obligation) and the associated cost due to employee service rendered in the current valuation period (known as the current service cost) under the accounting standards of the IAS 19 Employee Benefits. This method shall also be used to calculate the cost resulting from changes in post-employment benefit policy or a significant reduction in headcount, if applicable.

ABOUT THE AUTHOR

John Paul Hagnol

John Paul A. Hagnol received a Bachelor of Science in Mathematics from the Polytechnic University of the Philippines. He taught Mathematics and Statistics for two years before beginning his actuarial career

Currently working for E.M. Zalamea Actuarial Services, Inc. where he focuses on Retirement Valuations.  Paul, despite his youth, is taking a big leap of faith to establish a great career in this field.