Debate over the proper way to measure pension obligations is once again in the spotlight, with the Actuarial Standards Board considering yet another way to measure them and a special congressional committee on multiemployer pension plans debating whether current practices control enough for investment risks.
While controversy over the proper way to measure pension obligations has simmered for more than a decade, it came into sharper focus in March, when the Actuarial Standards Board, Washington, proposed revisions to actuarial standards of practice, with a call for public comment by July 31.
Some of the proposed changes are an improvement, but "others will cause confusion and be difficult to implement," James E. Holland Jr., chief actuary at Cheiron Inc., McLean, Va., wrote in a comment letter.
The most controversial piece of the proposed revisions to Standard No. 4 — "Measuring Pension Obligations and Determining Pension Plan Costs or Contributions" — is a requirement to calculate and disclose an investment risk defeasement measure when an actuary performs a funding valuation. Nicknamed iridium, the IRDM primarily includes a requirement for a discount rate based on the yield of a fixed-income portfolio, either U.S. Treasury or high-quality corporate bonds. Similar calculations already are being done for accounting and other purposes.
The proposal unleashed a storm of reactions, many of them negative, about how the changes could adversely affect public-sector pension funds in particular, although actuaries for corporate and multiemployer pension plans had plenty to say as well. Other practitioners worry the proposed change will incur costs and additional work, producing numbers that could confuse, rather than clarify, pension plan funding decisions.
"While it appears that the public-sector actuary practice was the major focus of the proposal, it could have implications for other plans," said Eli Greenblum, chief actuary of the Segal Group Inc. in Washington.