Transcript Slide 1

Oklahoma Public Fund Trustee
Education Conference
Actuarial Topics Update
Request
for Proposals
Alisa Bennett,
FSA, MAAA,
EA, FCA
Brent Banister,
PhD, FSA, MAAA,
EA, FCAServices
Actuarial
Consulting
April 13, 2010
September 26, 2014
Topics for Today
 New GASB Standard for OPEB Plans
 GASB 67 and 68 Implementation
 Funding and Disclosure Proposals
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New GASB Standard for OPEB Plans
 Exposure Draft of proposed OPEB accounting changes has
been released. Comment deadline was August 29, 2014.
 Proposed effective date for fiscal years on or after
December 15, 2015 for Plans, December 15, 2016 for
Employers.
 Similar to GASB 67/68 pension changes:
 Divorce funding and accounting (no ARC). If funding, will
have to define actuarially determined contribution (ADC)
and funding policy. Some discussion suggesting plans
not funding will disclose pay as you go employer
amounts.
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New GASB Standard for OPEB Plans
 Similar to GASB 67/68 pension changes:

Net OPEB Liability (NOL) moves to balance sheet of
employers. NOL is:
 Actuarial accrued liability (referred to in statements as Total OPEB
Liability or TOL) based on Entry Age Normal funding method, less
 Plan’s Fiduciary Net Position (market value of assets).


Discount rate = a blended single rate that is the equivalent of
the long-term rate while assets are available and a municipal
bond index for the remaining period. Many OPEB plans already
using a “blended rate” although more loosely defined.
Entry Age Normal (EAN) level percent of pay cost method.
Many OPEB benefits are not pay related. Method said to be
chosen to enhance comparability.
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New GASB Standard for OPEB Plans
 Similar to GASB 67/68 pension changes:

OPEB Expense
 EAN normal cost
 Interest on the NOL
 Immediate recognition of changes in active and inactive liability due
to plan amendments
 Deferred recognition (over average remaining service life) of
changes in active and inactive liability due to assumption changes
and actual experience
 Deferred recognition of investment gains and losses over five years.

Deferred inflows/outflows
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New GASB Standard for OPEB Plans
 Cost sharing employers will need to report proportionate
share of NOL, OPEB expense and deferred inflows and
outflows.
 Must account for special funding situations when a
non-employer contributing entity is present.
 Extensive footnote disclosure and supplementary information
required. 10 year schedules of many items.
 Sensitivity disclosures: +/- 1% discount rate, +/- 1% health
trend = 9 NOL measurements.
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New GASB Standard for OPEB Plans
 Valuations every 2 years. (Not 3 years even if fewer than
200 participants.)
 OPEB plans that are not administered through trusts that
meet the specified criteria, proposed Statement would
require an approach parallel to that which would be required
for OPEB plans that are administered through trusts that
meet the specified criteria. Essentially similar note
disclosures and required supplementary information would
be required to be presented.
 NOL must include cross-employer subsidies in addition to
the implicit subsidy.

May include liabilities that will not be paid by the entity.
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GASB 67 and 68
 Most plans are in the middle of their first GASB 67
report right now
 Many plans will also be using these results as the
basis for the amounts employers will book and
disclose under GASB 68 next year
 Auditing member data in cost-sharing multiple
employer plans is proving to be an issue
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GASB 67 and 68
Actuarial Issues
 Behind the scenes, here are some things your
actuary may be dealing with:
 Projecting cash flows to determine the discount rate
– What will assets earn long term?
– What will contributions be?
 Timing of fiscal years and plan years – they aren’t
always the same
 Special funding situations – or just someone else
helping out with funding?
 Employers who have special additional
contributions
 Auditors will need to help
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GASB 67 and 68
Actuarial Issues
 For GASB 68, the liability and cost must be
allocated across employers based on “future
contribution effort”
 Sometimes this is as simple as looking at the prior
year proportions of contributions or pay
 If different contribution rates apply to different
employers, this can get much more complicated
– Often requires sophisticated projections
– Long term is how long?
 Range of employers sizes from one employee to
thousands of employees affects numerical precision
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Public Plan Funding
 Current valuations are likely to look better than
they have the last few years
 The 2008-09 investment loss has been recognized
in most asset smoothing methods
 The year ending 6/30/14 was very good
 Pay raises and COLAs have been generally below
expectation, producing actuarial gains
 Calls for changes seem to be growing
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What’s Being Proposed Elsewhere?
 Replacing traditional plans with Defined
Contribution plans or Cash Balance plans
 Shifts risk from the employer to the employee
 More comparable to the private sector
 Imposing funding requirements on public plans
 Mandatory or voluntary
 Valuing public plans on a Market Value basis
 Additional disclosures
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Alternate Plan Designs
 Traditional Defined Benefit (DB) plans frequently
have a benefit that is a multiplier (e.g. 1.5% or 2%)
time years of service times final pay. Benefit is
guaranteed for life.
 Traditional Defined Contribution (DC) plans
provide a specified rate of pay (can vary with age
or service) to be placed into an individual account
which then grows (or shrinks) with the market.
Benefit is the account balance until it is gone.
 Cash Balance plans have some features of DB
and DC plans. The account gets pay credits like a
DC plan, but growth may be defined and
annuitization is normally like a DB plan.
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Comparison of Plan Designs
 DB plans tend to benefit longer service employees
and those who are employed later in their career.
Investment and mortality risk fall more on those
who fund the plan (employer and possibly active
members).
 DC plans and Cash Balance plans tend to benefit
shorter service employees and those who are
employed earlier in their career. Investment and
mortality risk fall on individuals.
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Funding Guidelines
 California
 Most plans are now required to fund the actuarial
rate
 Restriction of amortization period to avoid negative
amortization
 Conference of Consulting Actuaries
 White paper, based somewhat on California model
 Information for actuaries, has no binding authority
 Observation – lots of governments have made
funding a priority – this could reduce clamoring for
rigid rules
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Market Value of Pension
Obligations
 Basic concept – the value of the liabilities is what it
would cost to transfer current obligations to an
insurance company
 Few plans could legally do this
 “Market” doesn’t exist – so frequently tied to Treasury
bonds (which have not been market-based due to
Fed intervention)
 Corporate plans are now valued this way, primarily
to make sure a terminating plan can pay all costs
 Sometimes called “Risk Free” since returns could be
locked in with matching bonds
 Ignores value of investment return on funding
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SOA Blue Ribbon Panel
 Society of Actuaries (SOA) put together a panel to
look into public pension plans
 Most members were not actuaries, and not all
actuaries had public plan background
 Primary recommendation was for additional
disclosure, particularly in regards to risk
 SOA is not responsible for the Panel’s work, but
has been promoting it
 Many of the ideas would be beneficial to many
plans, but universal application has challenges
 Systems range from very tiny to over $100 Billion
 Funding policies vary greatly by jurisdiction
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Actuarial Standards Board
 Actuarial Standards Board (ASB) is the only
actuarial group able to bind what actuaries do
 Blue Ribbon Panel asked the ASB to consider its
recommendation and issue standards as needed
 ASB recently issued an exposure draft asking for
comments from the actuarial profession and those
affected by the proposed standards
 No specifics proposed yet
 Could be a departure from principles based
approach used for other standards
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