Pension plan sponsors of all types are keeping an eye on Nov. 1, when new actuarial standards on pension obligation risk assessment kick in.
Officially known as Actuarial Standard of Practice No. 51, the new steps for assessing and disclosing risks associated with measuring pension obligations and determining pension contributions for all types of plans — public, corporate and multiemployer — will apply when actuaries perform a funding valuation of a pension plan, or a pricing valuation for proposed plan changes that would significantly change the levels of risks.
The Actuarial Standards Board's pension committee "believes that the additional disclosures required by this standard will help the intended users of the actuarial findings gain a better understanding of risks inherent in the measurements of pension obligations and actuarially determined pension plan contributions," the new standard said.
Risks could include the possibility of actual future contributions deviating from expected future contributions; actual contributions deviating from a funding policy; and material changes in the anticipated number of covered employees.
"It's definitely a closer look at risks," said Bill Hallmark, a consulting actuary with Cheiron Inc. in Portland, Ore., and former vice president of pensions for the American Academy of Actuaries, which supports the new practice standards. "It would encourage people to understand how things might change if there are changes to the discount rate, or mortality, or if a plan sponsor doesn't make the contributions. It's got a wide range of calculations," said Mr. Hallmark, who expects its most significant impact will be with public pension plans, since multiemployer plans are already required to do some of the same projections and corporate plan sponsors are more likely to be conducting their own risk assessments.
For public plans, the new actuarial standards are "an opportunity to propose to clients some form of quantitative or numerical risk assessment," said Paul Angelo, senior vice president and actuary with Segal Consulting in San Francisco, who is a public plan expert active in actuarial policy issues. "That would show the sponsor how sensitive their costs are to a gain or loss relative to their assumptions."