By: Emily Feeny, ASA
ASOP 51: Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions
Risk has always been present and discussed in actuarial
work. Now pension actuaries must
disclose that risk in actuarial publications.
The
Actuarial Standard of Practice #51 (“ASOP 51”) was adopted by the Actuarial
Standards Board (“ASB”) in September of 2017 for actuarial work
products with a measurement date on or after November 1, 2018. ASOP 51 has three main components as it
relates to actuarial valuations: Assessment of Risk, Disclosure of Maturity
Measures and Disclosure of Historical Information.
ASOP 51 defines risk as “the potential of actual future measurements deviating from expected future measurements resulting from actual future experience deviating from actuarially assumed experience.” Actuaries should assess and disclose relevant risk in valuations. Two examples of risks are investment risk (the potential that investment returns will differ from expected) and longevity risk (the potential that mortality experience will be different from expected).
Actuaries should also list maturity measures in valuations,
such as the ratio of retired actuarial liability to total actuarial liability.
As a plan matures, the percentage of the liability associated with inactive
participants grows and the plan becomes more dependent on investment return
than on contributions for asset growth. Other maturity measures include
the ratio of market value of assets to active participant payroll and the ratio
of benefit payments to contributions.
Finally, ASOP 51 calls for disclosure of historical actuarial measurements such as funded status, normal cost and plan participant count. This historical information can be helpful in identifying trends so that corrective action can be taken where necessary.
The McKeogh Company
and ASOP 51
The McKeogh Company’s valuations with measurement dates of November 1, 2018 or later will include a section entitled “Risk Assessment and Disclosure”. This section will first list risks that a plan faces with respect to the actuarial assumptions and illustrate how deviations from expectations could affect assets and liabilities. Next, there will be a discussion of plan maturity measures to help illustrate risks associated with a maturing plan. The McKeogh Company valuations have always included historical actuarial measurements but will now use this new section to summarize the variance of such historical values and cite the sections in which more information can be found within the report.
The ASB and The McKeogh Company recognize the difficulty that Defined Benefit Pension Plans face during uncertain times. Plan sponsors will be better prepared for the future if they are more aware of the risks, maturity measurements and historical trends associated with their plans.
