The actuary should evaluate appropriate inflation data. That compares with 14% of operating revenue . Among the 131 funds that NASRA measured, more than half have reduced their investment return assumption since fiscal year 2020 as . The actuary should select economic assumptions that reflect the actuarys knowledge as of the measurement date. d. historical national wage increases and productivity growth. Before the changes in ASOP 27, actuarial specialists often would specifically disclaim any assessment regarding the expected long-term rate of return assumption when management selected the assumption and the actuary was not directly involved in the . Discount rates dropped to historical levels in 2019. The first exposure draft was issued in March 2018 with a comment deadline of July 31, 2018. Pension costs could make the MBTA 'insolvent' by 2038, document shows Mergers periodically occur between certain actuarial firms that had their own proprietary methods for developing assumed discount rates. Additionally, the expected long-term rate of return on plan assets is an important component when determining the net benefit cost each reporting period. The discount rate is the most significant economic assumption used to calculate a plan's liability. Public Pension Funds and Assumed Rates of Return: An Empirical As discussed in ASOP No. Contribution BudgetingAn actuary evaluating the sufficiency of a plans contribution policy may choose among several discount rates. 2.4 Financial assumptions when measuring the plan obligation - PwC The objective when selecting assumed discount rates for purposes of measuring a plans benefit obligations is to determine the single amount that, if invested at the measurement date in a portfolio of high-quality corporate debt instruments, would provide the necessary future cash flows to pay the benefits when due. WTW Pension 100: Year-end 2019 disclosures of funding, discount rates The internal controls should be designed to ensure that the amounts reported in the financial statements properly reflect the underlying assumptions (e.g., discount rate, estimated long-term rate of return, mortality, turnover, health care costs) and that the documentation maintained in the entity's accounting records sufficiently . In that case, the facts and circumstances of each plan will need to be assessed, including past practices and cost sharing arrangements, in order to determine the substantive plan of each employee group. It may also be an important factor for a plan of any size that provides highly subsidized early retirement benefits, lump-sum benefits, or supplemental benefits triggered by corporate restructuring or financial distress. If the dollar-denominated caps are based on the results of collective bargaining with a labor union, there is a general presumption under. e. Expenses Paid from Plan AssetsInvestment and other administrative expenses may be paid from plan assets. These disclosures may be brief but should be pertinent to the plans circumstances. Specific expertise may be needed to compute and support an appropriate adjustment. Examples of multiple compensation increase assumptions include the following: a. This actuarial standard of practice (ASOP or standard) does the following: a. provides guidance to actuaries when performing actuarial services that include selecting (including giving advice on selecting) economic assumptionsprimarily investment return, discount rate, post-retirement benefit increases, inflation, and compensation increasesfor measuring obligations under defined benefit pension plans; b. supplements the guidance in ASOP No. Assumed discount rates shall be reevaluated at each measurement date. The rate shown applies to the plans Non-Hazardous plan, which accounts for more than 90 percent of the Kentucky ERS plan liabilities. Compensation data may include the following: a. the plan sponsors current compensation practice and any anticipated changes in this practice; b. current compensation distributions by age or service; c. historical compensation increases and practices of the plan sponsor and other plan sponsors in the same industry or geographic area; and. 32, Social Insurance (unless ASOPs on social insurance explicitly call for application of this standard). The actuary should refer to ASOP No. Summarized here are the significant issues and questions contained in the comment letters and the responses to each. The disclosure may reference any study performed, including the date of the study. Document Status: Adopted. Measurements of defined benefit pension plan obligations include calculations such as funding valuations or other assignment of plan costs to time periods, liability measurements or other actuarial present value calculations, and cash flow projections or other estimates of the magnitude of future plan obligations. PDF Asset Allocation and the Investment Return Assumption As in the single-employer situation, the actuary may have discretion over other economic assumptions used to measure obligations for plans other than private single-employer plans. For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is a prescribed assumption or method set by another party. The period subsequent to the measurement date during which a particular economic assumption will apply in a given measurement. b. Generally, a participants compensation will increase over the long term in accordance with inflation, productivity growth, and merit adjustments. In addition, the actuary should disclose the following in such actuarial reports: The actuary should describe each significant economic assumption used in the measurement and, to the extent known, whether the assumption represents an estimate of future experience, an observation of the estimates inherent in market data, or a combination thereof. In some other circumstances, an additional assumption regarding an expected increase in pay in the final year of service may be used. If the actuary learns of an event occurring after the measurement date that would have changed the actuarys selection of an economic assumption, the actuary may reflect this change as of the measurement date.