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What is terminal funding?

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asked Nov 9 in BUS 4027W - Actuarial Risk Management by Rowan (3,200 points)

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

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answered Nov 9 by jolegutko (520 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.