Industry News

On April 11, 2024, the American Academy of Actuaries (AAA) published its issue brief, ‘Surplus’ Considerations for Public Pension Plans. The brief was authored by the AAA’s Public Plans Committee and presents the Committee’s perspective regarding a public pension plan’s “surplus” and considerations for plans that are 100% funded or approaching a full funding level in the future. 

The key highlights include:

• The brief suggests public pension plans use caution when using the term “surplus” or other similar terms such as “overfunded” to define a plan with a funded ratio over 100%;
• A “surplus” management strategy should be developed and integrated into the plan’s funding policy; and
• A “surplus” management strategy may include various elements that may be intended to preserve a plan’s current “surplus” and/or decrease the risk of future funded status and contribution volatility, such as benefit improvements, contribution adjustments and risk reduction strategies.

The brief concludes, “Historically, “surplus” often has been used to enhance benefits and reduce contributions. Funding policies should start by considering using “surplus” to manage or reduce risks to the plan. Balancing alternative uses of “surplus” may result in more measured contribution reductions, a more thorough analysis of the risks related to permanent benefit enhancements, and, ultimately, more stable funding of public pension plans.”

Among other members, the AAA’s Public Plans Committee includes Judith Kermans, President, CEO and Senior Consultant at GRS as well as Brian Murphy, a retired Senior Consultant and past President of GRS. 

The brief is available here.