A new white paper by the Conference of Consulting Actuaries’ Public Plans Community (CCAPPC) targeted to actuaries and retirement boards examines the development of actuarial funding policies and practices.
The paper is based on more than two years of extensive and detailed funding policy discussions among the members of the CCAPPC, which includes more than 50 actuaries whose firms are responsible for the actuarial services provided to the majority of public-sector retirement systems in the United States.
The paper develops the principal elements and parameters of an actuarial funding policy for public pension plans. It includes the development of a level cost allocation model (LCAM), a principles-based mathematical model of pension cost, as a basis for setting funding policies.
The CCAPPC advocates first identifying the policy objectives of such a public pension funding policy, and then evaluating the structure and parameters for each policy element in a way consistent with those objectives and with actuarial science and standards.
The paper argues that the principal goal of a funding policy is that future contributions and current plan assets should be sufficient to provide for all benefits expected to be paid to members and their beneficiaries when due. It sets forth the following as general principles in setting those policies:
The paper is based on more than two years of extensive and detailed funding policy discussions among the members of the CCAPPC, which includes more than 50 actuaries whose firms are responsible for the actuarial services provided to the majority of public-sector retirement systems in the United States.
The paper develops the principal elements and parameters of an actuarial funding policy for public pension plans. It includes the development of a level cost allocation model (LCAM), a principles-based mathematical model of pension cost, as a basis for setting funding policies.
The CCAPPC advocates first identifying the policy objectives of such a public pension funding policy, and then evaluating the structure and parameters for each policy element in a way consistent with those objectives and with actuarial science and standards.
The paper argues that the principal goal of a funding policy is that future contributions and current plan assets should be sufficient to provide for all benefits expected to be paid to members and their beneficiaries when due. It sets forth the following as general principles in setting those policies:
- Seek a reasonable allocation of the cost of benefits and the required funding to the years of service (i.e. demographic matching). This includes the goal that as much as possible, annual contributions should be closely related to the expected cost of each year of service and to variations around that cost.
- Seek to manage and control future contribution volatility in a way consistent with other policy goals.
- Support the general public policy goals of accountability and transparency.
- Consider the nature of public sector pension plans and their governance, including agency risk issues and the need for a sustained budgeting commitment from plan sponsors.
- Log in to post comments