Discount rate: This helps determine the value as at today of a liability payment that is to be made in the future. Large changes in the discount rate can occur from one valuation period to the next, especially during volatile financials conditions or after major economic events. By carrying out appropriate sensitivity analyses on the discount rate, we can help clients be cognizant about how drastically their liability could vary due to fluctuations in the discount rate.

The methodology to arrive at the discount rate is codified within the various accounting standards. Get in touch with us to understand more on how the discount rate is determined as per the accounting standard relevant to you.

Salary growth rate: The salary increment rate is another key assumption for arriving at the liability if the benefit payable to the employee is a function of his / her salary. Since this is an assumption that is very specific to each company and to each industry, we advise clients on the best way to arrive at this rate using past data and future expectations. We also help benchmark this assumption based on the experience of other similar companies within the industry.

Since this is another primary assumption which can have an impact on the liability, we also advise clients on the potential impact on their liabilities arising from a change in the salary growth rate due to any changes in regulation, HR policies, or the future outlook of the company.

Leaving Service Rate: This effectively determines the possibility of payments having to be made by the company at various points of time in the future. It is an assumption that varies from company to company depending on various factors such as the industry the company operates in, their retention policy and the prevailing economic conditions. While arriving at this assumption, it is important to ensure that past experience is analyzed and summarized in a way which is compatible with the way the assumption will be used in the valuation. Our team will be happy to share our pre-designed automated tool which can calculate these rates for the company and also explain the rationale behind the calculations.

Similar to the salary growth rate above, various factors could lead to a change in the expected leaving service rate of the company in the future. Get an idea of how the employee benefit liability could shift based on any expected movements in the future leaving service rate.

Mortality: With an up-to-date repository of the latest mortality tables, we advise on the most appropriate rates (pre-retirement as well as post-retirement) that should be used for valuations across employees in various geographies.

Leave Availment Ratio: When an employee utilizes his or her leave balance to take days off, there is a notional cost incurred by the Company even though there is no pay-out. Hence, to value the liability pertaining to leave balances that will be availed by employees, the leave availment ratio is used. It is a vital assumption for compensated absence valuations and hence should be chosen with care. We provide our tool to calculate the leave availment ratio, and also help clients gauge the sensitivity of the liability with respect to this assumption.

Pension Increases: If companies have pension plans which offer pension increases at regular intervals, the rate of pension increases is another important assumption. We help clients to arrive at a suitable rate of pension increases and also carry out sensitivity analyses on this assumption.

Medical Inflation: The rate at which medical costs increase in the future is a key assumption for plans that offer post-retirement medical benefits to their retired employees. Get in touch with us to understand how sensitive your liability would be to this particular assumption.