Presented By: Bradley R. Heinrichs, FSA, EA Actuarial Potpourri Presented By: Bradley R. Heinrichs, FSA, EA

BREAKING NEWS!!!

You’re Going to Remember Where You Were When….

It’s the Moment We’ve All Been Waiting For… Public Pension Mortality Study Exposure Draft Has Been Released By the SOA!!!!

Why Such a HUGE Deal? Prior mortality tables had ZERO public plan data!!! 78 public plans submitted data Collected information from calendar years 2008-2013 Central year of study is July 1, 2010-June 30, 2011 Can be utilized for 2019 valuations Three sets of mortality tables based on job category Teachers Public Safety (Police/Fire) General Employees Also split by income level in addition to job category Actuaries like for everybody to be dead on time

Fun Naming Conventions The full set of all public plan mortality tables produced in the study is denoted Pub-2010 Individual table names indicate job classification PubT-2010 for Teachers PubS-2010 for Public Safety PubG-2010 for General Employees Headcount-weighted tables are indicated with an “.H” Tables based on above and below median amount (salary or pension amount) are indicated with an “A” or “B”

Fun Naming Conventions For example: PubG-2010 : Amount-weighted General Employees PubT.H.-2010(B): Headcount weighted below-median Teachers

Results of the Study--Teachers

Results of the Study—Public Safety

Results of the Study—General

How Does This Impact Us? I predict that most public plans will migrate towards this table with generational projection Most public plans will see increases in costs Teachers plans will likely see largest increases Public safety plans will be surprised…but will also see increases General employees plans also will see higher costs Increases will be more pronounced (and likely double) if currently not projecting mortality improvements and then move to fully generational improvements

How Does This Impact Us? Real-life example: Effect on Louisiana Teachers’ plan liabilities: Current mortality assumption is RP-2014 white collar with some minor adjustments for plan experience MP-2017 generational improvements Population is 80% females Moving from current assumption to new Teachers table with MP-2017 generational improvements increases retirees’ liability by 3.6% (headcount-weighted) and 4.1% (amount-weighted) Not as large of an increase as seen in the annuity factors

In closing…. In accordance with ASOP 35, consider… All relevant covered population characteristics (including both Job Category and Income Level) when selecting base mortality rates The use of different mortality assumptions for different participant subgroups Appropriate mortality projection scales • Pub-2010 report and mortality tables can be found at https://www.soa.org/experience-studies/2018/pub-2010-retiremement/ • End of comment period: October 31, 2018 • Comments should be sent to Patrick Nolan at pnolan@soa.org

Service Purchases Members are typically allowed to buy back prior service at “no cost to the plan.” What does “no cost” actually mean? No increase in Present Value of Future Benefits? No increase in the Unfunded Actuarial Accrued Liability? No increase in the Present Value of Accrued Benefits? No increase in the Sponsor Contribution Requirement? Sometimes the method is legislated, but other times it is at the discretion of the actuary/board

Service Purchases Regardless of method, there may be problems treating a person who is buying service like the others People who purchase service don’t exhibit the same withdrawal rates as others People who purchase service typically retire sooner than many of the others Also typically live longer Should we use “Service Purchase” assumptions? What if the plan doesn’t make assumed rate of return?

Service Purchases Plan Provisions: Accrual Rate: 3.0% 5-Year Average Final Compensation Normal Retirement: Age 55 with 10 Years of Service, or Age 52 with 25 Years of Service Assumptions: 8.0% Interest RP2000 Mortality Table Projected to Valuation Date Purchase Request: 3 Years

Service Purchases Member Info: Age: 23 Service: < 1 Year Salary: $35,000 Purchase Request: 3 Years Method Before Purchase After Purchase Cost PVB $8,601,716 $8,608,192 $6,476 AL $7,567,402 $7,572,558 $5,156 PVAB $6,767,660 $6,771,383 $3,723 Contribution Req. $167,997 $168,830 $833 per year

Service Purchases Member Info: Age: 42 Service: 5 Years Salary: $55,000 Purchase Request: 3 Years Method Before Purchase After Purchase Cost PVB $8,601,716 $8,641,707 $39,991 AL $7,567,402 $7,595,846 $28,444 PVAB $6,767,660 $6,787,069 $19,409 Contribution Req. $167,997 $173,826 $5,829 per year

Service Purchases So what’s most common? Change in PVB “Service purchase” assumptions becoming more common Change in AL or Sponsor Contribution rate least common

Service Purchases Regardless of approach, issues remain… What to do about calc requests just before or just after valuation delivery? Are “service purchase assumptions” unduly harmful to the member? Some use 6-7% interest, no termination, immediate retirement at earliest eligible, no pre-retirement mortality

Questions?