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Old 07-27-2018, 08:16 PM
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Mary Pat Campbell
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Default ASOP 4, Draft Exposure

Here's the draft exposure:
PROPOSED REVISION OF ASOP NO. 4 – MEASURING PENSION OBLIGATIONS AND DETERMINING PENSION PLAN COSTS OR CONTRIBUTIONS (MARCH 2018)

http://www.actuarialstandardsboard.o...on-march-2018/

And sorry for the late notice, but comments are open until July 31, 2018.

Here are current comments:
http://www.actuarialstandardsboard.o...ns-march-2018/

There is one particular thing that is new & contentious (as opposed to new and not as contentious): THE INVESTMENT RISK DEFEASEMENT MEASURE

Here it is in the draft:

Quote:
3.11 INVESTMENT RISK DEFEASEMENT MEASURE
If the actuary is performing a funding valuation, the actuary should calculate and disclose an obligation measure to reflect the cost of effectively defeasing the investment risk of the plan. The actuary should calculate the investment risk defeasement measure using the following:

a. benefits accrued as of the measurement date;

b. the unit credit actuarial cost method;

c. discount rates consistent with market yields for a hypothetical bond portfolio whose cash flows reasonably match the pattern of benefits expected to be paid in the future. For this purpose, the actuary should use either of the following:

1. U.S. Treasury yields; or

2. rates at which the pension obligation can be effectively settled. The actuary may use yields of fixed-income debt securities that receive one of the two highest ratings given by a recognized ratings agency; and

d. assumptions other than discount rates used in the funding valuation or other reasonable assumptions based on estimates inherent in market data, in accordance with ASOP Nos. 27 and 35.
These are the specific questions with regards to this exposure draft:
Quote:
Request for Comments

The ASB would appreciate comments on all areas of the proposed standard but would like to draw the reader’s attention to the following questions in particular:

Section 3.11, Investment Risk Defeasement Measure, requires the calculation and disclosure of an investment risk defeasement measure when the actuary is performing a funding valuation. The guidance allows for discount rates to be based upon either U.S. Treasury yields or yields of fixed income debt securities that receive one of the two highest ratings given by a recognized ratings agency. Are these discount rate choices appropriate? If not, what rate choice would you suggest?

Under certain circumstances, section 3.20, Reasonable Actuarially Determined Contribution, requires the actuary to calculate and disclose a reasonable actuarially determined contribution. Do the conditions in this section describe an appropriate contribution allocation procedure for this purpose? If not, what changes would you suggest?
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Old 07-27-2018, 09:58 PM
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Mary Pat Campbell
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I excerpted some of the letters here:
http://stump.marypat.org/article/104...l-for-comments
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Old 07-30-2018, 06:52 PM
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Much thoughtful, and much self-serving commentary among the respondents.
The proposed IRDM would be more helpful if the TUC disclosures were shown at multiple interest rates, ranging between guaranteed rates like Treasury vs. projected long-term rates based on optimism. If long term rates were to be used, they usually reflect an explicit or implicit inflation assumption. For a disclosure based on long-term rates, the projected unit credit method would make it more consistent.
On a related point, IRDM disclosure would make more sense if it also includes a measurement of actual change between measurement periods in the past, along with a projected change in IRDM expected by the next measurement date.
Maybe there is still time to send in a response.....
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Old 07-30-2018, 07:00 PM
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Another point that deserves consideration:
Much of the abusive behavior observed in some plans is a decision made by interested individuals to increase benefits without consequence in a meaningful time period.
If you double someone's benefit with 30 year negative amortization of the cost, no one sees the corrupt behavior.
To correct this, I would prefer that IRDM measures are made that disclose changes within smaller employee groups than the whole plan, highlighting those units that far exceeded their expected growth in their IRDM value. This would put more disclosure information out to the interested parties.
Imagine the results of telling your local paper that you raised the benefits for your fire chief by $2 million just before they retired. That would cause a change in behavior by politicians. Imagine holding the local fire department responsible for funding that benefit in the year it occurs.
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Old 07-31-2018, 10:29 AM
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Been quite a more responses posted since my blog post:
http://www.actuarialstandardsboard.o...ns-march-2018/
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Old 07-31-2018, 01:40 PM
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Mary Pat Campbell
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oh look... they tweeted:
https://twitter.com/Actuary_Dot_Org/...16257850470400

Quote:
Today is your last chance to respond to the proposed revisions to pension ASOP Nos. 4, 27, and 35. Find out more here: http://bit.ly/ASOPcomments #Actuaries

11:30 AM - 31 Jul 2018
Get those comments in today!
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Old 08-01-2018, 04:44 PM
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62 letters - wow!

http://www.actuarialstandardsboard.o...ns-march-2018/

Let me check against an earlier thread:
http://www.actuarialoutpost.com/actu...d.php?t=280708

The comments for that request are here:
http://www.actuarialstandardsboard.org/11205-2/

only 55 that time

That time, I made a spreadsheet trying to summarize the comments:
https://docs.google.com/spreadsheets...it?usp=sharing


I am not going to do that this time, though I will likely read most of the letters.
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Old 08-03-2018, 06:11 PM
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One additional point comes to mind after reading the comment letters.

IRDM as a disclosure would be a consistent measure for the pursuit of public policy.
If you don't have enough funds to meet existing commitments at this time, and you compare these results over a period of time, you can see if the responsible parties are able to meet the promises made. This will allow the many publics to see if they are being properly served by the trustees, business owners, negotiation parties, etc.
If a union finds that their benefit security is going down, they can change their demands. If a multi-employer plan is showing increased risk of withdrawal penalties, they can negotiate either an exit strategy or more contributions.
The PBGC can see if a plan is becoming increasingly risky.
Newspaper reporters won't be so easily befuddled if there is a consistent measure.
It would put to rest the fantasy argument that 80% funding is OK. Maybe the Entry Age Normal liability is ok with 80% funding, but that is a projection that does not show the actual operation of the plan.

One other point: spread gain amortization over future working lifetime is too low a standard. Short term losses never get funded during the period they are earned.
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Old 08-04-2018, 12:52 PM
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Man, if it killed the 80% funded myth, I could finally get started on the "you use only 10% of your brain" myth.
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Old 08-05-2018, 08:23 AM
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Quote:
Originally Posted by StillCrazed View Post
Another point that deserves consideration:
Much of the abusive behavior observed in some plans is a decision made by interested individuals to increase benefits without consequence in a meaningful time period.
If you double someone's benefit with 30 year negative amortization of the cost, no one sees the corrupt behavior.
To correct this, I would prefer that IRDM measures are made that disclose changes within smaller employee groups than the whole plan, highlighting those units that far exceeded their expected growth in their IRDM value. This would put more disclosure information out to the interested parties.
Imagine the results of telling your local paper that you raised the benefits for your fire chief by $2 million just before they retired. That would cause a change in behavior by politicians. Imagine holding the local fire department responsible for funding that benefit in the year it occurs.
Simpler way to achieve transparency and avoid taxpayers being bamboozled is to get quotes from insurance companies for the annuity that would be earned, and pay the employee cash and tell them or their union to go buy an annuity if they want it.
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