1. Actuarial Issues Protecting against Pay spiking and new topics
2018 TLFFRA Conference
Actuarial Issues
Protecting against Pay spiking and new topics

2. Agenda Protection from Pay Spiking New Public Safety Mortality Study
Texas PRB Intensive Actuarial Review
Actuarial Standard of Practice No. 51

3. Protection from Pay Spiking
TLFFRA pension benefits are based on compensation earned in the final few years prior to retirement
Extraordinary increases in compensation will increase the cost of a member’s benefit without an orderly actuarial accumulation of contributions
If the increase is due to a promotion or a lot of overtime in the normal course of business, Boards typically accept this as part of the benefit promise
Primarily due to extreme weather related emergencies, some firefighters are working a lot of hours in other cities with the cost being reimbursed by state and federal agencies
TEMAT
TIFMAS
Water Rescue Team

4. Protection from Pay Spiking
Compensation earned during these emergency response periods may cover “portal to portal” periods
Compensation in a month could be $30-$40 thousand
If deployment was in the final few years prior to retirement, this will increase the pension benefit and put an unfunded liability on the Fund
If younger fire fighters were deployed the Fund gets more contributions
Cities are reimbursed by the state and federal government for deployment pay, but it is paid to the firefighter by the City, so it is likely included in plan compensation unless specifically excluded in the plan document
Compensation related to regularly scheduled fire fighter duties with the City, while deployed, might be tracked separately – check with City payroll

5. Protection from Pay Spiking
Example – 75% of 3 Year Final Average Earnings
50 Year old single member retires 1/1/2019
2016 Compensation of $75,000
2017 Compensation of $78,000
2018 Compensation of $110,000 (including $30 thousand of deployment pay)
Final Retirement Benefit is $65,750 vs. $58,250 without deployment pay (13% increase)
Estimated Actuarial Value of $790,000 vs. $700,000 ($90,000 increase)
Larger loss if participant is married
Assuming City and Member Contributions total 30% of pay, the contributions associated with the deployment pay equals $9,000
The member retires with $90,000 more in value for one month of work while the Fund received $9,000 of contributions

6. Protecting from Pay Spiking
Boards may want to prevent this type of unexpected cost to the Fund
Can’t take away benefits already earned, so must change plan document to prevent this from occurring in the future
It is important to understand City procedures and ensure the deployment pay is tracked separately from other compensation
One approach is to exclude any biweekly period from FAE calculation when earned on deployment from plan consideration
No member or City Contributions
All compensation during deployment is excluded from Final Average Pay
Alternatively, only compensation earned on deployment above regularly scheduled compensation is excluded
Requires careful planning by City payroll

7. Protecting from Pay Spiking
Extending the AFC period to 5 years, for example, will likely prevent spiking
Base Pay plans
Limiting OT for pension purposes
Discuss issue w/ City to help increase workforce and eliminate need for OT
If spiking is likely, make sure actuary applies load to final year of projected compensation when determining liabilities

8. BREAKING NEWS!!!

9. You’re Going to Remember Where You Were When….

10. It’s the Moment We’ve All Been Waiting For…
Public Pension Mortality Study Exposure Draft Has Been Released By the SOA!!!!

11. Why Such a HUGE Deal?
Prior mortality tables had ZERO public plan data!!!
78 public plans submitted data
Collected information from calendar years
Central year of study is July 1, 2010-June 30, 2011
Can be utilized for 2019 valuations
Three sets of mortality tables based on job category
Teachers
Public Safety (Police/Fire)
General Employees
Also split by income level in addition to job category
Actuaries like for everybody to be dead on time

12. Fun Naming Conventions
The full set of all public plan mortality tables produced in the study is denoted Pub-2010
Individual table names indicate job classification
PubT-2010 for Teachers
PubS-2010 for Public Safety
PubG-2010 for General Employees
Headcount-weighted tables are indicated with an “.H”
Tables based on above and below median amount (salary or pension amount) are indicated with an “A” or “B”

13. Fun Naming Conventions
For example:
PubG-2010 : Amount-weighted General Employees
PubT.H.-2010(B): Headcount weighted below-median Teachers
PubS-2010: Amount-weighted Public Safety Employees

14. Results of the Study—Public Safety

15. How Does This Impact Us?
I predict that most public plans will migrate towards these table with generational mortality projections
Most public plans will see increases in costs
TLFFRA plans will be surprised… will also see increases
Teachers plans may see the largest increases
Increases will be more pronounced (and likely double) if currently not projecting mortality improvements and then move to fully generational improvements

16. In closing…. In accordance with ASOP 35, consider…
All relevant covered population characteristics (including both Job Category and Income Level) when selecting base mortality rates
The use of different mortality assumptions for different participant subgroups
Appropriate mortality projection scales
• Pub-2010 report and mortality tables can be found at
• End of comment period: October 31, 2018
• Comments should be sent to Patrick Nolan at

17. Texas PRB Intensive Actuarial Review
The Texas PRB’s actuarial committee has been performing high level audits of public sector retirement funds
The selection process is based on a risk profile
Period Remaining to Amortize the Unfunded Actuarial Liability
Funded Ratio
Unfunded Actuarial Liability as a Percent of Payroll
Contribution Rate vs. Rate Needed to Satisfy PRB Funding Guidelines
Benefit Payments exceed Contributions (Negative Cash Flows)

18. Texas PRB Intensive Actuarial Review
Once selected, the PRB provides their initial findings to the Board and they invite the Board to provide a formal response to the report
Strategies being considered by the Board of trustees to address existing funding shortfalls and/or mitigate current and potential future risks
Corrections or updates to the report findings
At a future PRB actuarial committee meeting, the Board and City will be invited to speak at one of the PRB actuarial committee meetings
Ideally, the City and Board present a unified proposal
Alternatively, both parties may be asked to provide progress updates in the future

19. Texas PRB Intensive Actuarial Review
Things looked upon favorably at these Actuarial Reviews
Recent review of the actuarial assumptions
Adoption of lower long-term rate of return
Support for payroll growth assumption
Any recent reduction in benefits
Reducing final average pay formula or longevity benefit
Delaying full retirement age
Creating a new lower cost benefit structure for new hires
Constructive discussions with the City regarding their role
Recent increase in the City & Member Contribution Rates
If none of the above apply, the Committee will ask why not

20. ASOP No. 51
Actuarial Standard of Practice (ASOP) No. 51 Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions
ASOP 51 becomes effective for any actuarial work product with a measurement date on or after November 1, 2018
Goal of ASOP is to communicate the risk that actual future measurements may differ significantly from expected future measurements. Examples of future measurements include Actuarial Accrued Liability, actuarially determined contributions, and funded status

21. ASOP No. 51
The actuary should identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition. Examples of risks include the following:
a. investment risk (i.e., the potential that investment returns will be different than expected);
b. asset/liability mismatch risk (i.e., the potential that changes in asset values are not matched by changes in the value of liabilities);
c. interest rate risk (i.e., the potential that interest rates will be different than expected);
d. longevity and other demographic risks (i.e., the potential that mortality or other demographic experience will be different than expected); and
e. contribution risk (i.e., potential of actual future contributions deviating from expected future contributions)

22. ASOP No. 51
The actuary will assess these risks and disclose his/her findings
Upon request by the Board, the actuary can provide a quantitative assessment of one or more risk categories
Scenario Testing
Stress Testing
Plan Maturity Measures similar to the PRB Intensive Review selection process
Alternatively, the actuary can provide qualitative information