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What is terminal funding?

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asked Nov 9, 2017 in BUS 4027W - Actuarial Risk Management by Rowan (4,010 points)

What is terminal funding? The act-ed notes do not make it clear

2 Answers

+1 vote
answered Nov 9, 2017 by jolegutko (870 points)

Terminal funding means that the full amount is set aside at the moment when the first benefit payment needs to be paid. This only makes sense in the context of payments which are annuities, like a pension. A terminally funded pension would have the following cashflows: Person joins at age 30... nothing happens until age 65.... then the entire PV of the whole pension needs to be put into the fund... and at the same time the first pension payment is paid from the fund.

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answered Mar 26, 2018 by williamvhale (140 points)

Terminal Funding Annuity. Terminal Funding Annuities. Single Premium Group Annuities (SPGAs), commonly known as Terminal Funding, Single Shot or Buyout contracts, guarantee the benefits of a pension plan's retired, active or deferred vested participants.

William V Hale