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  #1001  
Old 03-15-2010, 10:17 AM
jim palermo jim palermo is offline
 
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Default Mortality Assumptions

I'm not an actuary, but I am an elected trustee to my village's Board of Trustees. I'm concerned about the mortality assumptions used in our police and fire pension plans. Our actuary uses tables dated 1971. Most state-wide plans in Illinois use 1994 tables, and the Chiago Police uses 1983 dated tables. I've seen a newspaper column that says CALPERS says the life expectancy of public safety officers is nearly identical to other participants.

My question is this: Why might an actuary use a table so dated? THanks very muchh for your insight.

Jim
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  #1002  
Old 03-15-2010, 10:33 AM
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Jim,

Updating the mortality table will result in higher contribution requirements for the village. You can check whether the Board has considered doing this in the past. If not, this should be a fairly inexpensive thing for the plan's actuary to cost out the impact.
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  #1003  
Old 03-15-2010, 10:38 AM
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1. I am not a pension actuary

2. I would recommend asking the actuaries who valued the pensions directly. They should be able to explain their assumption set.

3. Many of the "up-to-date" mortality tables for many different uses [not just pensions] are based off tables that were originally created decades ago. We've got mortality improvement scales [developed for various purposes] to update the table so that the end result will work for the current population.

I don't know if it's in the case of your plan, but it's possible that such a mortality improvement scale was used with the base mortality table.

4. Again, I would ask the actuaries who prepared the valuation report.
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  #1004  
Old 03-15-2010, 11:01 AM
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Most pension actuaries know very little about mortality but they know exactly how much their big clients' liabilities will change by changing the table from say GAM71 to GAM83 or GAM83 to GAM-whatever, etc. When I worked as a pension actuary (long time ago now) I was involved in a total of one experience study. I think that I was part of 1 more than most. Consider that most clients are not large enough to do any kind of real experience study on. How does an actuary know anything about an unobservable assumption (like long term future mortality) unless they study the heck out the data they have? Making that work less likely to be done, is that it is not billable to just study experience without a project. I don't know how many villages are asking for experience studies and are willing to pay.

It is a case where following the herd is more important than getting it right. That isn't necessarily wrong but there is another thread somewhere about the longevity bond or mortality swap market existing to try and arb the widespread use of underestimated mortality in the pension space.
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Last edited by WWSituation; 03-15-2010 at 11:06 AM..
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  #1005  
Old 03-15-2010, 11:10 AM
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Quote:
Originally Posted by WWSituation View Post
When I worked as a pension actuary (long time ago now) I was involved in a total of one experience study. I think that I was part of 1 more than most.
I've been part of two massive ones, and I've only been at this thing for a few years. One for a huge long-term client (we do a full experience study every few years) and one for a one-off project for a large government client.

Edit: I also prepare a summary of experience over the past five years for each of my clients as part of the standard valuation work (admittedly, mortality isn't something that has very credible data when talking about 1000 participants).

Edit2: For Minimum Funding purposes, mortality is now prescribed by the IRS.

Last edited by SirVLCIV; 03-15-2010 at 11:16 AM..
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  #1006  
Old 03-15-2010, 11:20 AM
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Quote:
Originally Posted by SirVLCIV View Post
I've been part of two massive ones, and I've only been at this thing for a few years. One for a huge long-term client (we do a full experience study every few years) and one for a one-off project for a large government client.

Edit: I also prepare a summary of experience over the past five years for each of my clients as part of the standard valuation work (admittedly, mortality isn't something that has very credible data when talking about 1000 participants).

Edit2: For Minimum Funding purposes, mortality is now prescribed by the IRS.
For ERISA plans alone?

It definitely doesn't pertain to public plans.
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  #1007  
Old 03-15-2010, 11:45 AM
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For ERISA plans alone?

It definitely doesn't pertain to public plans.
Yes, for ERISA plans, which is what I work on. Sorry about that
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  #1008  
Old 03-15-2010, 01:16 PM
jim palermo jim palermo is offline
 
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Originally Posted by Dan Moore View Post
Jim,

Updating the mortality table will result in higher contribution requirements for the village. You can check whether the Board has considered doing this in the past. If not, this should be a fairly inexpensive thing for the plan's actuary to cost out the impact.
Thanks, Dan. Like plenty of governments, our plans underfunded, but we don't have as much $$$ as we'd like to do capital projects and maintain or increase public services. Not only does our mortality table look dated, but our retirement age appears to be set a couple years higher than our experience. My worry is that our assumptions are too optimistic, resulting in contributions which are too small.

Can a plan "shop" for the actuary who tells them what they want to hear? The liability calculation side of the equation is definitely a 'black box' except for the actuaries. Usually a plan trustee or Village trustee doens't even know the questions to ask, let alone know whether the answer staff or the investment/actuary consultants are giving a good answer.

Thanks--Jim
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  #1009  
Old 03-15-2010, 04:34 PM
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"State officials have started to take notice of Contra Costa examples of a retired fire chief converting a $185,000 annual salary into a $241,000 yearly pension; another chief trading a $221,000 annual salary for a $284,000 yearly pension; a sanitary district general manager drawing a $217,000 pension, nearly as much as his $234,000 salary; and a county administrator drawing a $240,000 starting pension that roughly equaled his $245,000 final salary."

OK, help me understand why these amounts are payable well in excess of 100% of pay or the 415 dollar limit applied to private plans?
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  #1010  
Old 03-16-2010, 08:52 AM
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Ooops, added to the wrong thread. Be back in a bit.


Oh, I see preventing double-posts w/i 5 minutes. Hmmm, I wonder who drove =that= policy?

....la la la la la..... waiting to move the post.....
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Last edited by campbell; 03-16-2010 at 08:56 AM..
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