Education
and Training

Prior to the release of ASOP 51 (Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions), pension Standards of Practice focused on funding. While risk management analysis, e.g., projections and scenario modeling, occurred prior to ASOP 51, the new Standard outlines specific areas of risk for investigation, including investment risk. The positive investment return environment of recent years provides a scenario where the application of ASOP 51 is not only required for the actuary, but relevant in terms of funding policy for the fiduciary.

During this session, we will first lay the foundation for discussion by identifying the primary users of risk measurement information, key features of ASOP 51, and sources of risk, along with how each source is measured. We will then discuss the trade-offs that exist between different risks and the lessons learned by public employee retirement systems as investment markets have gone from Bear to Bull and back over the years. The session will conclude by providing examples of methods that public sector retirement systems are using to manage risk.

The Actuarial Standards Board (ASB) has adopted an Actuarial Standard of Practice (ASOP No. 51) for pension valuations that would provide guidance to actuaries on the measurement of risk associated with pension obligations and actuarially determined contributions. The ASB’s Pension Committee describes risk as “the potential for future deviation of actual results from expectations derived from actuarial assumptions.” As such, the ASOP requires that actuaries provide an assessment of the significant risks associated with the measures. The ASOP also covers guidance on the methods the actuary should consider for assessing risk.

While the ASOP impacts the work of the actuary, it is important that retirement system trustees and sponsors gain a good understanding of these risks and how they can affect various funding policy decisions. In addition, understanding the role of and need for each risk assessment method is likely to be a subject of discussion and determination between the actuary and client.

During this session, the presenter will explain the significant risks that may affect the plan’s financial condition, which include investment risk, asset/liability mismatch risk, interest rate risk, longevity risk, and other risks that may have a material effect as determined by the actuary. A discussion of the methods to be used to measure the risks and their role in the assessment process will also be covered. These methods include stress tests, scenario tests, sensitivity tests, and stochastic modeling.

In 2018, the Society of Actuaries (SOA) published new mortality tables based exclusively on public employee retirement system (PERS) data. The SOA published separate tables for General Employees, Public Safety and Teachers. The tables reflect lower mortality rates for public sector DB plan members compared to private sector DB plan members. This presentation will help PERS understand implementation issues, as well as review potential implications of the new tables.

Understanding the implications of an aging population, can help public employee retirement systems address the ever-changing demands of the public sector workforce. This presentation lays the foundation for the changes in life expectancy and the challenges this places on the funding of retirement programs. The presentation will cover: 1) sustainability in the face of changing demographics; 2) the way plans may address changes in workforce through design; and 3) how to use actuarial assumptions and methods to stay “ahead of the curve.”

Many public sector retirement systems’ funded statuses have declined and their contribution requirements have increased over the past decade. These trends have prompted various levels of pension reform across the country. Reform efforts can become complex since there are numerous many stakeholders with various objectives. This presentation will offer a top-down pension reform approach that promotes a thorough and thoughtful process to help create sustainable solutions. The “top-down” approach assesses the overall structure and magnitude of change, including the development of a contribution strategy, and then details the specific design modifications to achieve those objectives.

In 1935, Franklin D. Roosevelt characterized Social Security as “ …a law which gives some measure of protection to the average citizen and his family against the loss of a job and against poverty-ridden old age.” Nearly 90 years later, Social Security remains an essential part of the Three-Legged Stool of retirement: Social Security, Pension, and Savings.

As such, understanding the workings of Social Security is necessary in order for the defined benefit (DB) pension plan trustee to evaluate the adequacy of the defined benefit in their pension plan. This is true even if DB benefits aren’t being coordinated with Social Security but especially true if they are. This session will cover the fundamentals of Social Security benefits, its history, and an actuarial perspective on Social Security financing and solvency.

• The first segment covers Social Security participation, with an emphasis on the public sector’s coverage and history alongside the law.
• The second segment of the presentation compares the defined benefit pension to the social security benefit and discusses various legislative changes, e.g., Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), impacting benefit levels and retirement trends.
• The final segment provides insight into Social Security financing and the operation of the trust fund. In particular, this segment will provide an actuarial perspective on revenues, costs, and demographic trends impacting the trust and the ways in which the federal government is proposing to keep the system solvent and sustainable.

As focus on pension plan sustainability and funding levels has increased, variable benefit plans have become an option for governmental retirement systems to consider. The basic premise of variable benefit plans is to balance the risk/reward between the plan sponsor and participant to a greater degree than under a traditional defined benefit (DB) plan.

These risks and rewards come from the actual versus expected DB plan experience related to economic and non-economic assumptions, with investment performance being a key driver. The eventual design of a variable benefit plan depends on the retirement system’s funding and investment goals and plan provisions. As a result, there is no “single” type of variable benefit plan. Rather, the approach takes advantage of various levers to accomplish the retirement system’s sustainability and funding goals. For example, cash balance features paired with a minimum DB benefit plus a variable DB benefit, and some kind of inflation protection are commonly seen in variable benefit plans.

During this session, we will present variable benefit plan case studies for two statewide retirement systems. Each plan’s design features and the impact on benefit adequacy, contribution stabilization, liabilities and funding levels that resulted from the change will be covered.