The Building Blocks of an Actuarial Valuation

Slides:



Advertisements
Similar presentations
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator. MnSCU Retirement Plans Basic Training for Campus HR.
Advertisements

Retirement Benefit Seminar
Retirement Workshop (PERF & TRF).
Public Plan Solvency & Funding GFOA Meeting October 6, 2011 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD N.
Tennessee Consolidated Retirement System 15 th Floor Andrew Jackson Bldg. 502 Deaderick Street Nashville, TN
LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD N. Glenstone Place Baton Rouge, LA (225)
Copyright © 2011 Pearson Prentice Hall. All rights reserved. Chapter 7 Financial Operations of Insurers.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 7 Financial Operations of Insurers.
An Overview: Teachers’ Retirement System of Louisiana Prepared for the Advisory Group on Civil Service and Employee Benefits August 25, 2009.
Florida Government Finance Officers Association Webinar GASB’s New Pension Standards December 18, 2014.
8/9/2015copyright macminn.org 1 Retirement plans Richard MacMinn.
Retirement Planning and Employee Benefits for Financial Planners
RISK MANAGEMENT FOR ENTERPRISES AND INDIVIDUALS Chapter 21 Employment-Based and Individual Longevity Risk Management.
2012 Retirement Legislation Update on LASERS Issues October 4, 2012 Presented by: Beverly Hodges Trustee.
Learning Objective # 5 Determine your planned retirement income. LO#5.
Accounting Clinic VII McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
MTA Defined Benefit Pension Plan
TACOMA EMPLOYES' RETIREMENT SYSTEM. Orientation Outline ISources of Retirement Income IIHow the Plan Is Funded and Managed IIIService Retirement Benefits.
Chapter 14 Annuities and Individual Retirement Accounts
City Rates and Actuarial Issues 2007 Annual Training Seminar 2007, Texas Municipal Retirement System.
TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA Actuarial Valuation as of June 30, 2008 Presented by J. Christian Conradi and Mark Randall on October 22, 2008.
Vancouver Webcast Financial and Operational Review Accountable To You 4th Annual General Meeting October 15, 2005.
1 An Overview of MainePERS for Maine Association of Police October 28, 2008.
Arizona State Retirement System Presentation to the Government Finance Officers Association of Arizona January 7, 2011.
Life Insurance In Qualified Plans Chapter 32 Tools & Techniques of Life Insurance Planning  What is it?  Life insurance is purchased and owned.
Actuarial Assumptions and Methods: What is Reasonable?
Group IV Membership Provisions. Introduction TCRS provides benefits to more than 220,000 active members, and over 110,000 retired members TCRS provides.
Gregory M. Curran, FCA, MAAA, ASA, EA Consulting Actuary G. S. Curran & Company, Ltd N. Glenstone Place Baton Rouge, Louisiana (225)
Board Retreat – Oct 20, 2011 FCERA 2011 Retirement Board Retreat October 20, 2011 Paul Angelo, FSA Andy Yeung, ASA The Segal Company, San Francisco v2.
1 EMS/Fire Department Consolidation Treatment of Pension and Service Under the Police/Fire, CSRS, and 401(a) Plans.
Retirement Planning Session
Covered Employer Training Program Introduction to the Retirement Systems FY 2016.
Welcome! The PERS Update An Overview of PERS, OPSRP and the IAP Revised 11/24/09.
James Wilbanks, Ph.D. Retirement Administrator Mendocino County Employees Retirement Association.
Westmoreland County Employee Retirement Fund Presentation prepared by Jeffrey Balzer, County Controller.
Welcome! The PERS Update An Overview of PERS, OPSRP and the IAP Revised 4/09/09.
Welcome! The PERS Update An Overview of PERS, OPSRP and the IAP Revised 5/6/2013.
CSRS Retirement NALC Branch 79 Retirement NALC Branch 79.
PERS Education and Retirement Planning Welcome ! The Oregon Public Service Retirement Plan (OPSRP) Updated: 4/22/08.
Actuarial Status Update of the Employees’ Retirement Fund of the City of Fort Worth May 4, 2010 Presented by Doug Anderson, EA, ASA, MAAA Gallagher Benefit.
Covered employer training program Introduction to the Retirement Systems FY 2017.
Public Employees Retirement Association of Minnesota
GASB’s OPEB Changes - Will they impact public sector health care benefits? November 7, 2014 Eric Gary, FSA, FCA, MAAA Chief Health Actuary.
Financial Fiduciaries, LLC
Retirement Planning Professor Payne, Finance 4100
Pension Reform Effective Date July 1, 2017.
Pension Information Committee Report
TRS Funding and Pension Benefits
Lecture 23 Pension Plan Funding
League of AZ Cities and Towns PSPRS Pension Task Force August 15, 2014
Accounting for Postemployment Benefits
History July 1, 1968 – Establishment of Trust Territory Social Security Administration July 1, 1974 – Establishment of disability program February 8,
Service Center Training: Plan Provisions
RETIRE Retirement Earnings Training and Information for Retiring Employees
Director, Center for Workers’ Benefits and Capital Strategies, AFT
PSfit – Public Safety Financial Independence Training Article 3 Police Pensions Tier 2 Members Hired After January IPPFA - PSfit.
PSfit – Public Safety Financial Independence Training Article 4 Fire Pensions Tier 2 Participants Hired After January IPPFA - PSfit.
Kingsport City Schools Retirement Overview 2018
Funding Pension Benefits for Georgia’s Educators
Compensation and benefits tax: benefits tax
Senate E-12 Finance March 19, 2018
Reaching Retirement with RSA-1
FINANCIAL MANAGEMENT ELEMENT 42 PG. 202.
Retirement 101 James Wilbanks, Ph.D. Retirement Administrator
Oklahoma County Employees Retirement System
Understanding Your Federal Benefits
Setting the Course for Retirement Readiness Iowa Annual Conference
Greene Finney Annual Conference May 30, 2019
Inside a plan experience study
Presentation transcript:

The Building Blocks of an Actuarial Valuation LAPERS 2017 The Building Blocks of an Actuarial Valuation Gregory M. Curran, FCA, MAAA, ASA, EA Consulting Actuary G. S. Curran & Company, Ltd. 10555 N. Glenstone Place Baton Rouge, Louisiana 70810 (225)769-4825

Points of Discussion Training required to be an actuary Building an actuarial valuation model

Topics Studied By Actuaries Probability Exam General probability and statistics Univariate probability distributions Multivariate probability distributions Financial Mathematics Time value of money/Interest theory Annuities and cash flows with non-contingent payments Loans General cash flows and portfolios Portfolio Immunization

Topics Studied By Actuaries (continued) Models for Financial Economics Derivative securities General properties of options Binomial Option Pricing Model Black-Scholes Option Pricing Model Models for Life Contingencies Present Value Random Variables Calculation of insurance premiums Insurance Reserves Applying models to pension benefits

Topics Studied By Actuaries (continued) Construction and Evaluation of Actuarial Models Security Models Frequency Models Aggregate Claim Models Risk Measures Construction of Empirical Models Credibility Simulation

Topics Studied By Actuaries (continued) Required College Coursework Economics Corporate Finance Applied Statistics and Methods

In addition to Actuarial Exams and required coursework: 8 Learning Modules on the Fundamentals of Actuarial Practice titled … Role of the Professional Actuary Core External Forces Risk in Actuarial Calculations Actuarial Solutions Design and Pricing of Actuarial Solutions Model Selection and Solution Design Selecting Assumptions Monitoring Results

Enrolled Actuary Exams – for Pension Actuaries Mathematics of Compound Interest Mathematics of Life Contingencies Demographic Analysis Exam 2 – Segment F Actuarial Assumptions Actuarial Cost Methods Calculation of Minimum Required Contributions Calculation of Maximum Deductible Contributions Exam 2 – Segment L Covers ERISA and related federal laws

Description of Items Needed in Building an Actuarial Valuation Model

Building an Actuarial Model Actuarial valuation software must be set up to include benefit projections for each type of benefit available at future dates along with setting eligibility rules for each benefit. Withdrawal benefits Disability benefits Retirement benefits DROP or Back-DROP benefits Survivor benefits

Building an Actuarial Model Build a set of assumptions within the model Demographic Assumptions Probabilities/Rates of Withdrawal, Disability, Retirement, DROP Entry Mortality Tables for actives, retired, and disabled Rates of remarriage Probability of service related disability/death Family Statistics Percent of members who are married Percent of members with Children Average Number of Children Average Age of Children

Building an Actuarial Model (Continued) Financial assumptions Valuation Interest Rate/Discount Rate/Assumed Rate of Return Inflation Assumption Salary scale assumption Final average compensation Period Account for Early Retirement Reductions when not set to be reduced actuarially

Building an Actuarial Model (Continued) Must consider minimum service required for each type of benefit Vested benefits Disability benefits Survivor benefits Lifetime spousal benefits Minor child benefits Retirement benefits

Actuarial models include many types of payments like… Level payment lifetime monthly annuity Deferred lifetime monthly annuity – payments do not begin until a member reaches a particular age or until a certain number of years have passed Deferred Lump Sum – Payment of DROP/IBO/Back-DROP lump sums occur after an accumulation period and perhaps an additional service period Immediate Lump Sum Geometrically increasing lifetime monthly annuity

A few types of annuities: Life Annuity - Payable for the life of the member Reversionary Annuity - Payable for the life of a named beneficiary upon death of the member if the beneficiary is alive at the member’s death Life Annuity (Cease on Remarriage) - Survivor benefits payable until remarriage of the recipient. Temporary Life Annuity - Payable while alive but only during a specified period. Period Certain Annuity - Payable for a specified period even if the member dies

A few types of annuities (continued): Certain and Continuous Annuity – Lifetime annuity with a guarantee of payments for a certain period regardless of death Cash refund annuity – Annuity that pays a designated beneficiary the difference between the cash balance originally annuitized and the sum of annuity payments received prior to death, if any.

Special Situations Account for benefit limits Account for members who are vested but choose to take a refund at termination Inclusion of average accumulated leave in benefit formulas for systems that allow conversion of unused leave to retirement credit Do contributions cease for employees who reach 100% accrual? Does the system receive contributions during DROP period? Accrual rates that change after reaching a specified period of service

Special Situations (Continued) Option factors needed within the model to account for automatic option 2 benefits to survivors Different setup for each tier of benefits May have to separate data into multiple sub-plans with different benefit rules and possibly different assumptions

A funding method is needed to determine funding requirements The funding method determines the annual cost allocations – Normal Cost The funding method also specifies the method for determining the Unfunded Accrued Liability, if any. Determining the Unfunded Accrued Liability is separate from determining the annual payments required to pay off the UAL. Funding methods seek to collect sufficient assets to reach full funding over a particular time frame Some methods seek to fully fund over the future working lifetime of members Some set arbitrary periods over which to pay off Unfunded Accrued Liabilities

Items considered in determining the minimum actuarially required employer contribution Normal cost Payments on any Unfunded Accrued Liabilities Anticipated administrative costs (unless handled through a change in assumptions) If not explicitly handled in determining required contributions or implicitly through adjusting assumptions, will affect UAL or NC and be spread over a specified period or future working lifetime of members Adjustment for employee contributions and other dedicated funds which offset employer contributions

Inputs to the valuation process Data on every member, former member, retiree and beneficiary potentially due payments from the system in the future. Audited financial statements for the system as of the valuation date with support for certain payable liabilities set up by the auditor. Administrative questionnaire – information provided by the Director related to the system, Board decisions over the past years, and the membership.

Inputs to the valuation process (continued) Data related special circumstances Handling of split benefits payable to alternate payees Annualizing salaries for new hires or individuals who did not work a full year Handling of members on leave without pay or worker’s compensation as of the valuation date Reemployed retirees Offset benefits for disabled members with outside income or financial awards

Actuarial Reports Although the primary purpose of the actuarial valuation is to determine the minimum recommended employer contribution rate, the actuarial report has many additional purposes, including: Determining rates of return for use in administration of the retirement system Providing the Board of Trustees with commentary on system risks and funded status Providing information to the Board and other stakeholders related to the impacts of gains and losses Discussing the cost and availability of COLAs to system retirees in accordance with the law.

Actuarial Reports (Continued) Providing historical information related to the system’s actuarial funded status Summarizing statutory changes affecting the retirement system in the most recent legislative year Describing the system’s census of members, former members due some payment, and retirees Providing a Summary of Plan Provisions Providing the actuary’s recommended changes in assumptions and methods Providing important communications from the actuary to the Board necessary to support upcoming decisions.