GRS Consultants Present Session at P2F2 Conference

Events​

October 19, 2021

GRS Consultants Present Session at P2F2 Conference

David Kausch and James Sparks presented the session “What’s This Accounting vs. Funding Basis?” at the Public Pension Financial Forum (P2F2) virtual conference.  

Session Overview:

The discussion covered the different purposes of actuarial valuations-funding and accounting-and the similarities and differences between them.  Attendees were provided with an actuarial perspective on the assumed rate of return, discount rate, actuarial cost methods, timing of recognition of gains and losses, assumption changes, plan amendments, and contribution and expense calculations.  

CRR Releases Issue Brief on Public Teacher Compensation

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CRR Releases Issue Brief on Public Teacher Compensation

On October 26, 2021, the Center for Retirement Research at Boston College (CRR) released its issue brief, What Do We Know About Public Teacher Compensation? The CRR study analyzes public teacher compensation to help determine whether current compensation levels are sufficient to recruit and retain high-quality teachers to promote better student outcomes.

The study utilizes more accurate estimates of benefit costs for public teachers including retirement benefits, health and retirement plan coverage as well as other benefits such as Social Security, supplemental pay and paid leave. The results indicate that public teachers earn about the same compensation as similar private sector workers.

The CRR cautions that, due to reductions in pension benefits for public teachers hired in the past decade, relative compensation is likely to decline over time. In addition, uncompetitive compensation may make it more challenging to recruit high-quality teachers, which may potentially result in worse outcomes for students.

The brief is available here.

IRS Issues COVID-19 Relief FAQs for Employers Seeking to Rehire Retirees or Retain Employees After Retirement Age

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IRS Issues COVID-19 Relief FAQs for Employers Seeking to Rehire Retirees or Retain Employees After Retirement Age

On October 22, 2021, the Internal Revenue Service (IRS) issued new guidance in the form of two frequently asked questions (FAQs) that address existing pension plan qualification rules when rehiring retirees or retaining employees after retirement age. The guidance for public and private employers is intended to help relieve labor shortages related to the COVID-19 pandemic by assisting employers to encourage retirees to return to the workforce and for experienced employees to stay in the workforce.

Generally, the IRS is reminding employers that they will not jeopardize the tax status of their defined benefit (DB) pension plans if they rehire retirees or permit distributions of retirement benefits to current employees who have reached age 59-1/2, or the plan’s normal retirement age.

Under the FAQs:

  • An employer can generally choose to address unforeseen hiring needs by rehiring former employees, even if those employees have already retired and begun receiving pension benefit payments;
  • If permitted under plan terms, those employees may continue receiving the benefits after they are rehired; and
  • An employer can generally choose to make retirement distributions available to existing employees who have reached age 59-1/2 years or the plan’s normal retirement age, which may help retain employees that are eligible for retirement.​

The FAQs are available here.

Society of Actuaries Releases Mortality Improvement Scale MP-2021

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Society of Actuaries Releases Mortality Improvement Scale MP-2021

In October 2021, the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries (SOA) issued its Mortality Improvement Scale MP-2021 Report. The report provides the new MP-2021 Mortality Improvement Scale, which is an annually updated mortality improvement scale for pension plans. The new scale includes one additional year of historical U.S. population mortality experience through 2019.

The new scale suggests that life expectancies increased slightly, which may result in slightly higher pension plan obligations. According to the SOA’s report, their preliminary estimates indicate that, generally, updating from the MP-2020 to the MP-2021 scale may increase a pension plan’s obligations by about 0.2% to 0.4%, when calculated using a 4.0% discount rate. 

Since March 2020, COVID-19 has significantly affected mortality rates in the United States. The RPEC noted that due to the uncertainty about the near-term and long-term effects of COVID-19, no adjustments to Scale  MP-2021 have been made for the pandemic. However, the report includes instructions for individual practitioners to incorporate their COVID-19 adjustments into the base improvement scale.

Currently, Piotr Krekora, Consultant for GRS, serves as a member of the RPEC and David Kausch, Chief Actuary for GRS, previously served as a member and chairperson of the RPEC.

The MP-2021 report is available here.

S&P Global Releases Report on Increasing Pension Obligation Bond Issuances in 2021

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S&P Global Releases Report on Increasing Pension Obligation Bond Issuances in 2021

On October 14, 2021, S&P Global Ratings released its report, Pension Obligation Bond Issuances Continue to Increase in 2021. The report indicates that the issuance of U.S. pension obligation bonds (POB) and other postemployment benefit (OPEB) obligation bonds (OOB) is increasing.

In the U.S. Public Finance sector (USPF), POB issuance has accelerated in the current low interest rate environment. From January 1, 2021 to September 15, 2021, S&P Global rated 64 new POB issuances in the USPF sector which totaled about $6.3 billion, up 113% from $3.0 billion issued in calendar year 2020.

The key findings include:

  • The primary factors driving POB issuances consist of a favorable interest rate environment and issuers’ challenge to control the escalation of pension contributions;
  • The main credit concerns for issuers focus on market returns falling short of expectations and pension contribution increases creating budgetary constraints; and
  • Obligations that intend to address pension liabilities may come in different forms, but have similar credit risks.

The report is available here.

EBRI Releases 2021 Workplace Wellness Survey Report

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EBRI Releases 2021 Workplace Wellness Survey Report

On October 7, 2021, the Employee Benefit Research Institute (EBRI) released its summary report, 2021 Workplace Wellness Survey. The survey examines employees’ attitudes toward employment-based benefits in the workplace. It also covers an extensive range of issues such as employment-based health insurance, financial well-being and retirement benefits.

The key survey findings include:

  • 76% of employees favorably view their employers’ efforts to improve their overall well-being;
  • Over 30% of employees continued to feel their employer’s efforts to improve emotional, physical and financial wellness over the past year and value benefits more than income adjustments;
  • 62% are extremely or very satisfied with their retirement plan offerings;
  • 83% of employees consider health coverage as extremely or very important when making job decisions;
  • About 50% feel mental health wellness programs are increasingly important due to the COVID-19 pandemic; and
  • 49% of employees are at least moderately concerned about their household’s financial well-being in addition to their personal emotional and physical well-being.

The summary report is available here.

S&P Global Identifies Overlap of ESG and Credit Ratings for Pension and OPEB Analysis

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S&P Global Identifies Overlap of ESG and Credit Ratings for Pension and OPEB Analysis

On October 7, 2021, S&P Global Ratings released its issue brief, ESG Pension and OPEB Analysis in U.S. Public Finance. The brief is intended to identify when pension analytics and environmental, social and governance (ESG) intersects with credit rating analysis in U.S. public finance.

According to S&P Global Ratings, ESG factors may overlap with credit rating analysis for pension and OPEB when the prioritization of plan contributions (based on progressive plan governance decisions) is considered in conjunction with risk management, culture and oversight. Further, to mitigate risks, an issuer’s ability to modify benefits, funding methods or plan assumptions is considered in both an ESG-focused assessment of governance and the overall credit rating analysis.

The brief is available here.

 

American Academy of Actuaries Updates Issue Brief on the 80% Pension Funding Myth

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American Academy of Actuaries Updates Issue Brief on the 80% Pension Funding Myth

On October 6, 2021, the American Academy of Actuaries (AAA) released its issue brief, The 80% Pension Funding Myth. According to the brief, “Financial entities, regulatory bodies, governments and media have all cited an 80% funded ratio as a basis for whether a pension plan is “healthy” or “actuarially sound.” The frequency and persistence of these citations potentially lends credibility to a myth that an 80% “standard” is appropriate.” This brief is intended to debunk the myth that an 80% funded ratio is a basis for whether a pension plan is considered healthy or actuarially sound. 

The brief indicates that, “Pension plans are generally better evaluated on the strategy in place to attain a funded ratio of 100% within a reasonable period of time. The financial health of a pension plan depends on many factors in addition to funded status — including the size of any shortfall compared with the resources of the plan sponsor. Projections under a range of scenarios can be particularly useful in evaluating the plan’s expected funding trajectory and assessing plan health.” 

The brief concludes, “All plans should have a reasonable funding of contribution strategy to accumulate assets equal to 100% of a relevant pension obligation, unless reasons for a different target have been clearly identified and the consequences of that target are well understood.”

The brief is available here.

James Rizzo Presents Session: Fulfilling the Pension Promise with Integrity

Events​

October 7, 2021

James Rizzo Presents Session: Fulfilling the Pension Promise with Integrity

James Rizzo served as a presenter at the Public Funds Investment Seminar hosted by Public Trust Advisors on October 7, 2021.

The presentation, “Fulfilling the Pension Promise with Integrity,” discusses a framework and considerations for setting the investment return assumption to help public employee retirement systems fulfill the pension promise made to their employees and retirees. Issues covered in the discussion: 1) developing a rigorous assumption setting process 2) considerations related to annual governmental budgets 3) plans’ benefit cash flow

October 2021

IN THIS ISSUE

• Legislative Update
• New Cybersecurity Guidance
• Update on Actuarial Equivalence Lawsuits
• COVID-19 Telemedicine Relief Ending
• Surprise Billing: Part 1
• FAQs about Affordable Care Act and Consolidated Appropriations Act
• COVID-19 Vaccine Surcharges