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Old 11-24-2015, 10:39 AM
Beach Bum Beach Bum is offline
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Default Question About a Local Town's Pension

Hi All,

A family friend who works for a small city came to me with a few pension related questions. Not my expertise so I wanted to post the inquiry here to get some advice.

The consulting actuary is saying due to new regulations (or requirements), and something about using 2012 as a reference, the funding requirements are going up significantly for the city. The actuary is saying he/she is required to follow these new rules. The reason for the increase in funding is that it increases the longevity risk on fire and police employees, I believe out to 120 years.

Here are my questions. What is the 2012 reference, is that a new mortality table? Is this new 120 year ultimate longevity commonly used now? Does the actuary have to abide by state law or federal law?

Any advice is appreciated. I'll go back to him with the input. Thanks all.
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Old 11-24-2015, 10:58 AM
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Mary Pat Campbell
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Is this in Illinois? California?
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Old 11-24-2015, 01:54 PM
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Originally Posted by campbell View Post
Is this in Illinois? California?
Illinois
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Old 11-24-2015, 03:43 PM
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Mary Pat Campbell
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I assume this is an IMRF pension.

The IMRF (Illinois Municipal Retirement Fund) covers the municipal workers, and they dictate to municipalities how much they have to pay into the fund. Many Illinois municipalities have been hit with extra costs. You can check out the history here:
http://publicplansdata.org/quick-fac...lan/?ppd_id=32

You can see that the %age of payroll contribution has been climbing.

So I looked it up, and yes, they had some valuation assumption changes:
https://www.imrf.org/en/publications...ty-assumptions

Quote:
NOW THEREFORE BE IT RESOLVED that the following changes to the actuarial assumptions be adopted for the IMRF Annual Actuarial Valuations as of December 31, 2014 and thereafter:

-Lowering price inflation assumption from 3.0% to 2.75%.
-Lowering wage inflation assumption from 4.0% to 3.5%.
-No change to the investment return assumption of 7.5%.
-Adopt the RP-2014 mortality tables with adjustments for IMRF experience and the MP-2014 projection scale, with administrative factors to be implemented by GRS at a later date.
I don't know what adjustments for IMRF experience they've done
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Old 11-24-2015, 03:48 PM
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Ooops, sorry, I see this is fire & police.

Those are different.

This is the most recent report on those:
http://cgfa.ilga.gov/Upload/2015Poli...tPA95-0950.pdf

I don't see what the assumption changes they made were, but I wouldn't be surprised if they got mortality updates as well

this seems related:
http://www.wirepoints.com/10069/

Quote:
Until 2012,when the DOI published its actuarial experience study the DOI’s assumptions themselves were dubious, basing mortality assumptions on the 1971 GAM table, colloquially called the ‘chain-smokers table’ because it is so out-of-date. Between plans using bad assumptions deliberately and those using them inadvertently, arguably the use of dated assumptions had become institutionalized, with many trustees being unable to recognize actuarial reality.

Table 1 highlights some of the key assumption changes that came out of the experience study:


TABLE 1

Expected Investment Return
Return is lowered from 7.5% to a range of 5.0% for the smallest plans to 6.5% for the largest. The lower expected return results in higher required contributions

Mortality Table
The 1971 GAM Table is replaced with the more conservative RP-2000 BC Table. The expectation is that participants will live longer than previously believed.

Age of Spouse
The assumption that the female spouse is three years younger than the male spouse is adopted. Younger spouses are expected to live longer, requiring larger municipal contributions

Retirement Age
Police officers and fire fighters are expected to retire at a slightly younger age than previously thought

Disability Frequency
The frequency of disability assumption increases. However, the increase does not result in a meaningful increase to pension contributions.


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Old 11-28-2015, 05:07 PM
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this is the other possibility:

https://www.linkedin.com/pulse/prepa...-68-ben-porter

Quote:
In June of 2012, the Governmental Accounting Standards Board (GASB) announced rule changes regarding the way states and municipalities must report on the financial state of their defined benefits plans – and more specifically – the way they must report the unfunded liabilities tied to the those plans. Unfunded liabilities occur when a plans total obligations exceeds the projected plan assets at any point in time.

.....
The rule change, known as GASB Statement No. 68, went into effect for all reporting tied to fiscal year 2014, meaning that the first reports filed under the new rules arrived in just the past few months. While most experts agree that the change has yet to cause any major disruption in state-level legislative matters, there hasn’t been enough time yet to gauge the possible impact. Add to that growing consensus that this relatively minor regulatory tweak could dramatically raise the stakes in state budgetary debates going forward.

That’s because the more transparent reporting, mandated by Statement No. 68, means that unfunded liabilities can no longer be hidden, as they used to be, among the notes section of financial reports for pension plans. Rather, they have to be listed as liabilities, right on the balance sheet.

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Old 11-30-2015, 04:27 PM
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Default Local Town's Pension

Hi Beach Bum
There was no REQUIREMENT to do anything relative to 2012. There was, however, a lot of pressure on some actuaries to update their assumptions (see Mary Pat's comments). To save face, they blamed requirements from GASB or from the Illinois Dept of Insurance forcing the assumptions to be changed. Possible violation of ASB precepts, ya think??

The "120 ultimate longevity" concept was something that one of these late-blooming actuaries was spouting out. The notion of a table setting q120 at 1.00 has been around for a very long time. It certainly does not imply that the police and firefighters covered by the pension plan will live that long, but they were implying this was the case.

So what town/village are we talking about, anyway. Since it is a public plan, you are not revealing anything confidential.
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