An article by Larry Pollack, a consulting actuary with his own take, focuses on the problem:
The Actuarial Standards Board (ASB), which defines professional standards for actuaries, finally acknowledged the criticisms and adopted a requirement for actuaries to calculate and disclose – starting with funding reports to be published (mostly) in 2024 – a liability measure more consistent with finance principles. The new measure provides valuable information not previously available, although it is not perfect, and, importantly, it will not affect actuarially-determined contributions or financial accounting. Further, many prominent and influential public pension actuaries are rejecting this opportunity to educate their clients and the public about how much worse the funding of public pensions is versus what’s commonly reported. Instead, these actuaries have aligned with major public pension advocacy groups in developing a toolkit as part of a campaign to help actuaries and public officials divert attention from the significance and implications of the new figure.
So what is it the ASB wants actuaries to disclose?
New required calculation and disclosure when performing a funding valuation: Low-Default-Risk Obligation Measure (LDROM) (page 9)
If the actuary concludes, based on the assessment required that the Contribution Allocation Procedure (CAP) or plan’s funding policy is significantly inconsistent with the plan accumulating adequate assets to make benefit payments when due, disclose that conclusion as well as an estimate of the approximate time until assets are depleted. (page 24) – wondering where they could have gotten this idea.
When calculating the LDROM, the actuary should
- Base the measure on benefits earned (or costs accrued) as of the measurement date
- Use an immediate gain cost method
- Select a discount rate or discount rates derived from low-default-risk fixed income
securities whose cash flows are reasonably consistent with the pattern of benefits
expected to be paid in the future. Examples of discount rates included in standard – they are not safe harbors - Consider using alternative valuation procedures when plan provisions create pension
obligations that are difficult to appropriately measure using traditional valuation
procedures - Consider reflecting the impact, if any, of investing plan assets in low-default-risk fixed
income securities on the pattern of benefits expected to be paid in the future (page 33)
Pension Task Force suggested calculation and disclosure of a Solvency Liability. This topic evolved through the three exposure drafts. LDROM is similar to, but not as strict as Solvency Liability. (page 36)
Burypensions Blog 