How should Financial Economics Principles Be Applied (or not applied) to Public Pension Plans?
Here are Tom’s thoughts on the application of Financial Economics to Public Pension plans.
What’s up at the Actuarial Standards Board?
There are a couple of Actuarial Standard Board (ASB) projects underway that will impact what we disclose in future pension valuations.
Model Legislation for Better Public Plan Governance (vs. Risk Disclosure)
Tom has submitted an article/proposal to the Society of Actuaries’ Pension Forum about the need for model legislation covering public pension governance, the basic questions presented by such a proposal, and the possible answers. Tom’s expectation is that this will commence further and deeper conversations on this topic.
Accounting For Volunteer Firefighter LOSAPs and New GASB 73 Rules
Many counties provide benefit plans to volunteer firefighters through Length of Service Award Programs (LOSAPs). While it may be difficult to consider these pension plans since they cover non-employees, the accounting rules (GASB 68, paragraph 5 and GASB 73, paragraph 7) make it clear that the same pension accounting rules that apply to employee plans also apply to volunteer plans.
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Road to Improve Public Pension Funding
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Comment Letter to the Actuarial Standards Board Regarding Principal Based Reserves for Life Products
The Actuarial Standards Board (ASB) asked for comments that included a question about who is the actuary’s client when working on public pension funds. Tom helped the Conference of Consulting Actuaries write a response. Separately, the ASB drafted new language suggesting that life insurance actuaries are not responsible for their work. Tom sent in a comment letter linking the two documents.
The comment letter can be found here.
Pension Plan Valuations:
Views on Using Multiple Measures to Offer a More Complete Financial Picture
The GAO just issued a report called: “Pension Plan Valuations: Views on Using Multiple Measures to Offer a More Complete Financial Picture.” This is part of a larger debate about whether pension contributions and/or liability measures should be based on expected rates of trust fund returns or low bond interest rates. The GAO report noted differences between the public and private sector and differences of opinions between experts. One interesting observation was that different sides “agree that each generation should pay its fair share for pension cost, but disagreed about what this meant in practice.” The GAO took no position. The full report can be found here.
GASB Issuing New Standards for OPEB Reporting
We’re in the process of implementing GASB 67/68 for pension plans and GASB has released an exposure draft to set similar standards for OPEB. The new OPEB accounting standards largely mirror the new pension standards, but would be effective for FY2018 in most cases. We submitted a letter to GASB outlining our comments on the proposed changes. Links to our letter and all of the letters received by GASB are below.
Self Adjusting Pension Design
Variable annuity plans tend not to be the first choice of either employers or employees. We like these designs but this article is about why they are not yet catching on.
September 2013 – Issue 81
I have spent a lot of time over the last two years working with the Conference of Consulting Actuaries Public Plans Community (CCA PPC) in drafting a “white paper” on public pension funding policies. The need for this paper is driven by several changes in the GASB accounting rules including the elimination of the annual required contribution (ARC) and changes to the expense calculation which makes the expense not only volatile but not known until well after budgeting is complete. The CCA PPC white paper is intended for a national audience, as part of a nation-wide review and discussion of funding policies for public pension plans. The CCA PPC white paper is very detailed but there is also a summary chart.
To view the CCA PPC white paper click here.
As a final note: Some of you may also have heard of a Society of Actuaries Blue Ribbon Panel paper. The SOA paper has some useful concepts but is a poor alternative to the CCA paper and I suggest you focus on the CCA paper. This is due in part to the SOA Panel only having one experienced public pension actuary compared to the CCA paper having representatives from all of the major pension consulting firms.
In early 2014 the Society of Actuaries issued a White Paper on Public Pension Funds. The Panel that created the paper was comprised primarily of non actuaries and did not include any actuaries from the major public sector consulting firms. Many recommendations were made by the Panel. The Panel asked the Actuarial Standards Board (ASB) to consider all of their recommendations.
Click here to view a memo about the Panel's recommendations that Tom sent to the ASB Pension Committee prior to meeting with that Committee on April 9th.
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