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Public Plan Solvency & Funding GFOA Meeting October 6, 2011 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N.

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Presentation on theme: "Public Plan Solvency & Funding GFOA Meeting October 6, 2011 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N."— Presentation transcript:

1 Public Plan Solvency & Funding GFOA Meeting October 6, 2011 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD N. Glenstone Place Baton Rouge, LA (225)

2 Typically Solvency Measured By Assets ÷ Liabilities

3 But… Which Assets and Which Liabilities?

4 Various Asset Measurements Available  Cost  Market  Actuarial

5 Cost Value of Assets  Generally, not currently used  Used under prior accounting rules

6 Market Value of Assets  Fair Value of Investments  Special Cases:  Hedge Funds  Private Equity  Real Estate  Timber

7 Actuarial Value of Assets  Market Value  Smoothed Value  Objective  Methodologies  Periods  Corridors

8 Assets: GASB 25 / 27  Currently  Actuarial Value of Assets  Proposed  Market Value

9 Various Liability Measurements Available  Funding Method Liability  Based on whatever actuarial funding method is used  Rules Based Liability  Based on a prescribed method. Measured at the funding interest rate or a stipulated interest rate.

10 Liabilities: GASB 25 / 27  Currently  Funding Liability  Proposed  Stipulated Method Liability

11 Liability Interest Rate GASB 25 / 27  Currently  Funding Interest Rate  Proposed  Blended rate based on current fixed income rate and funding interest rate

12 Funding Basics Present Value of Future Benefits

13 Funding Methods  Unit Credit  Projected Unit Credit  Entry Age Normal  Frozen Entry / Attained Age Normal  Aggregate

14 Normal Cost  Unit Credit  Present value of benefits earned during the year  Projected Unit Credit  Present value of benefits (with projection for salary increase) earned during the year  Entry Age Normal  Designed as level percent of pay over working career

15 Unfunded Accrued Liability (Unit Credit / Projected Unit Credit / Entry Age Normal) UAL= Accumulated Normal Costs + Accumulated Losses (Gains) + Accumulated Changes in Assumptions + Accumulated Benefit Increases – Assets

16 Normal Costs  Frozen Attained / Entry Age Normal  Allocated Share of Present Value of Future Normal Costs Derived from the UAL  Aggregate Funding  Allocated Share of Present Value of Future Normal Cost Derived from a Zero UAL

17 Unfunded Accrued Liability  Frozen Attained / Entry Age Normal  Set by reference to Unit Credit / Entry Age Normal Method  Aggregate  Set = 0

18 Gains & Losses  Sources:  Assets & Liabilities  Allocated to:  Unfunded Accrued Liability for Unit Credit, Projected Unit Credit & Entry Age Normal  Normal Cost for Frozen Attained / Entry Age Normal & Aggregate Method

19 Funding Sources  Employee Contributions  Direct Employer Contributions  Ad Valorem Taxes  Revenue Sharing Funds  Insurance Premium Taxes

20 Funding Volatility  Different systems have different contribution volatility based on different plan provisions and different demography of the group

21 Funding Leverage  Leverage of employee contributions will depend on what percentage of the cost of the plan is paid for by direct employer contributions

22 Back to Solvency…  Funded Ratio  Single measurement can be misleading  Trend is more important than single measurement  Change in accounting rules will change ratios  Even with standardized measure, comparatives between plans are not valid since assumptions will differ


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