Actuary searches warn against market valuation

Montana Public Employees’ Retirement Board and the Montana Teachers’ Retirement System, both of Helena, issued separate RFPs for actuarial consulting services, with both threatening to disqualify bidders if they support market valuation of pension liabilities.

The $4.7 billion public employees board RFP sets a May 8 due date for proposals, while the $2.9 billion teachers’ system has a May 19 deadline.

Milliman is the incumbent for both funds. Scott Miller, legal counsel of the public employees board, said Milliman is allowed to rebid for the public employees job. David Senn, director of the teachers system, couldn’t be reached for comment.

The public employees board’s last search was in 1999, and as fiduciaries, the board members want to see what the market has to offer for such services, Mr. Miller said, explaining the reason for the search.

The two RFPs each warn that if the actuarial firm or its primary actuary submitting a proposal supports market valuation of liabilities for public pension plans, “their proposal may be disqualified from further consideration.”

“The actuarial firm’s ability to meet financial reporting requirements and market value liabilities portion of the offer will be evaluated on a pass/fail basis, with any (bidder) receiving a ‘fail’ eliminated from further consideration,” the public employees’ board RFP states. The teachers system RFP has similar wording.

Mr. Miller said, “We don’t want to pay for an actuary that believes market value (of liabilities) theory is appropriate for public plans. … The point (of that statement in the RFP) is we aren’t interested in bringing in an actuary to pressure the board to adopt market value of liabilities theory. “

The board determines the valuation method for discounting liabilities to their present value, and it uses actuarial valuation, currently 8%, based on the long-term assumed rate of return of assets, Mr. Miller said.

A market-value method might use a rate now of 3% to 3.5%, he said.