1. Oklahoma Public Fund Trustee Education Conference
Request for Proposals
Actuarial Consulting Services
April 13, 2010
Actuarial Topics Update
Alisa Bennett, FSA, MAAA, EA, FCA
Brent Banister, PhD, FSA, MAAA, EA, FCA
September 26, 2014

2. Topics for Today
New GASB Standard for OPEB Plans
GASB 67 and 68 Implementation
Funding and Disclosure Proposals

3. New GASB Standard for OPEB Plans
Exposure Draft of proposed OPEB accounting changes has been released. Comment deadline was August 29, 2014.
Proposed effective date for fiscal years on or after December 15, 2015 for Plans, December 15, 2016 for Employers.
Similar to GASB 67/68 pension changes:
Divorce funding and accounting (no ARC). If funding, will have to define actuarially determined contribution (ADC) and funding policy. Some discussion suggesting plans not funding will disclose pay as you go employer amounts.

4. New GASB Standard for OPEB Plans
Similar to GASB 67/68 pension changes:
Net OPEB Liability (NOL) moves to balance sheet of employers. NOL is:
Actuarial accrued liability (referred to in statements as Total OPEB Liability or TOL) based on Entry Age Normal funding method, less
Plan’s Fiduciary Net Position (market value of assets).
Discount rate = a blended single rate that is the equivalent of the long-term rate while assets are available and a municipal bond index for the remaining period. Many OPEB plans already using a “blended rate” although more loosely defined.
Entry Age Normal (EAN) level percent of pay cost method. Many OPEB benefits are not pay related. Method said to be chosen to enhance comparability.

5. New GASB Standard for OPEB Plans
Similar to GASB 67/68 pension changes:
OPEB Expense
EAN normal cost
Interest on the NOL
Immediate recognition of changes in active and inactive liability due to plan amendments
Deferred recognition (over average remaining service life) of changes in active and inactive liability due to assumption changes and actual experience
Deferred recognition of investment gains and losses over five years.
Deferred inflows/outflows

6. New GASB Standard for OPEB Plans
Cost sharing employers will need to report proportionate share of NOL, OPEB expense and deferred inflows and outflows.
Must account for special funding situations when a non-employer contributing entity is present.
Extensive footnote disclosure and supplementary information required. 10 year schedules of many items.
Sensitivity disclosures: +/- 1% discount rate, +/- 1% health trend = 9 NOL measurements.

7. New GASB Standard for OPEB Plans
Valuations every 2 years. (Not 3 years even if fewer than 200 participants.)
OPEB plans that are not administered through trusts that meet the specified criteria, proposed Statement would require an approach parallel to that which would be required for OPEB plans that are administered through trusts that meet the specified criteria. Essentially similar note disclosures and required supplementary information would be required to be presented.
NOL must include cross-employer subsidies in addition to the implicit subsidy.
May include liabilities that will not be paid by the entity.

8. GASB 67 and 68
Most plans are in the middle of their first GASB 67 report right now
Many plans will also be using these results as the basis for the amounts employers will book and disclose under GASB 68 next year
Auditing member data in cost-sharing multiple employer plans is proving to be an issue

9. GASB 67 and 68 Actuarial Issues
Behind the scenes, here are some things your actuary may be dealing with:
Projecting cash flows to determine the discount rate
What will assets earn long term?
What will contributions be?
Timing of fiscal years and plan years – they aren’t always the same
Special funding situations – or just someone else helping out with funding?
Employers who have special additional contributions
Auditors will need to help

10. GASB 67 and 68 Actuarial Issues
For GASB 68, the liability and cost must be allocated across employers based on “future contribution effort”
Sometimes this is as simple as looking at the prior year proportions of contributions or pay
If different contribution rates apply to different employers, this can get much more complicated
Often requires sophisticated projections
Long term is how long?
Range of employers sizes from one employee to thousands of employees affects numerical precision

11. Public Plan Funding
Current valuations are likely to look better than they have the last few years
The investment loss has been recognized in most asset smoothing methods
The year ending 6/30/14 was very good
Pay raises and COLAs have been generally below expectation, producing actuarial gains
Calls for changes seem to be growing

12. What’s Being Proposed Elsewhere?
Replacing traditional plans with Defined Contribution plans or Cash Balance plans
Shifts risk from the employer to the employee
More comparable to the private sector
Imposing funding requirements on public plans
Mandatory or voluntary
Valuing public plans on a Market Value basis
Additional disclosures

13. Alternate Plan Designs
Traditional Defined Benefit (DB) plans frequently have a benefit that is a multiplier (e.g. 1.5% or 2%) time years of service times final pay. Benefit is guaranteed for life.
Traditional Defined Contribution (DC) plans provide a specified rate of pay (can vary with age or service) to be placed into an individual account which then grows (or shrinks) with the market. Benefit is the account balance until it is gone.
Cash Balance plans have some features of DB and DC plans. The account gets pay credits like a DC plan, but growth may be defined and annuitization is normally like a DB plan.

14. Comparison of Plan Designs
DB plans tend to benefit longer service employees and those who are employed later in their career. Investment and mortality risk fall more on those who fund the plan (employer and possibly active members).
DC plans and Cash Balance plans tend to benefit shorter service employees and those who are employed earlier in their career. Investment and mortality risk fall on individuals.

15. Funding Guidelines California Conference of Consulting Actuaries
Most plans are now required to fund the actuarial rate
Restriction of amortization period to avoid negative amortization
Conference of Consulting Actuaries
White paper, based somewhat on California model
Information for actuaries, has no binding authority
Observation – lots of governments have made funding a priority – this could reduce clamoring for rigid rules

16. Market Value of Pension Obligations
Basic concept – the value of the liabilities is what it would cost to transfer current obligations to an insurance company
Few plans could legally do this
“Market” doesn’t exist – so frequently tied to Treasury bonds (which have not been market-based due to Fed intervention)
Corporate plans are now valued this way, primarily to make sure a terminating plan can pay all costs
Sometimes called “Risk Free” since returns could be locked in with matching bonds
Ignores value of investment return on funding

17. SOA Blue Ribbon Panel
Society of Actuaries (SOA) put together a panel to look into public pension plans
Most members were not actuaries, and not all actuaries had public plan background
Primary recommendation was for additional disclosure, particularly in regards to risk
SOA is not responsible for the Panel’s work, but has been promoting it
Many of the ideas would be beneficial to many plans, but universal application has challenges
Systems range from very tiny to over $100 Billion
Funding policies vary greatly by jurisdiction

18. Actuarial Standards Board
Actuarial Standards Board (ASB) is the only actuarial group able to bind what actuaries do
Blue Ribbon Panel asked the ASB to consider its recommendation and issue standards as needed
ASB recently issued an exposure draft asking for comments from the actuarial profession and those affected by the proposed standards
No specifics proposed yet
Could be a departure from principles based approach used for other standards