1. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Actuarial Board for Counseling and Discipline IABA Annual Meeting Atlanta, Georgia August 3, 2012 1

2. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Actuarial Board for Counseling and Discipline THE ABCDs of PROFESSIONALISM Robert J. Rietz FSA, MAAA, FCA, MSPA 2

3. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Agenda Background on ABCD Code of Professional Conduct Discipline Process Case Studies 3

4. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Actuarial Board for Counseling and Discipline ABCD was established in 1991 by the U.S. actuarial organizations to –Investigate alleged violations of the Code of Professional Conduct by members and recommend discipline –Counsel (provide guidance to) members –Mediate disputes between members and others. 4

5. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Membership Appointed by Council of U.S. Presidents - CUSP (Presidents and Presidents-elect of U.S. organizations) Member Area of Practice Paul Fleischacker, ChairpersonHealth Janet Fagan, Vice ChairpersonCasualty Robert Rietz, Vice ChairpersonPension Nancy BehrensLife James GuttermanHealth Curtis HuntingtonLife Kurt PiperPensions John PurpleCasualty Kathleen RileyPension 5

6. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Processes Follow Article X of AAA bylaws and ABCD Rules of Procedure All ABCD inquiries, guidance and mediation confidential, unless –Actuary makes public or agrees to publication –Court requires disclosure –Redacted, generic situation used for educational purposes 6

7. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries An ABCD Inquiry Is a fact-finding effort, not an adversarial forum Examines whether or not an actuary materially violated the COPC Does not administer discipline, but may recommend a level of discipline to an actuary’s membership organizations 7

8. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries U.S. Code of Professional Conduct The revised U.S. Code of Professional Conduct (“Code” or “COPC”) was adopted by the five U.S.-based actuarial organizations (AAA, ASPPA, CAS, CCA & SoA), and took effect 1 January 2001. The Code sets forth professional/ethical standards for actuarial members of the five U.S.-based actuarial organizations. 8

9. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries U.S. Code of Professional Conduct The Code contains 14 Precepts, along with annotations providing further guidance on adhering to the Precepts. The Precepts are standards that must be followed by credentialed actuaries who are members of one of the U.S.-based organizations or whose member organizations require their members to follow the U.S. Code. 9

10. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries U.S. Code of Professional Conduct Precept 1Professional Integrity Precept 2Qualification Standards Precept 3Standards of Practice Precept 4Actuarial Communications Precept 5Principal Precept 6Disclosure Precept 7Conflict of Interest 10

11. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries U.S. Code of Professional Conduct Precept 8 Control of Work Product Precept 9 Confidentiality Precept 10 Courtesy and Cooperation Precept 11 Advertising Precept 12 Titles and Designations Precept 13 Knowledge of Violation Precept 14 Cooperation with ABCD 11

12. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Request for Guidance Private guidance by ABCD member –Expresses member’s own opinion Private guidance by ABCD –Expresses views of board Public guidance by ABCD –At request or agreement of actuary(ies) –Provides guidance to profession –Expresses views of board –Usually printed in Contingencies 12

13. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Request for Guidance Example of RFG Topics How do I know if I am qualified? How can I become qualified? How can I do a job that involves more than one area of expertise? How much can I rely on my supervisor? How much can I rely on my staff? How much documentation of my work should I save? What if I leave my company? When should I refuse an assignment? When should I make a complaint about another actuary? When is a violation of the Code material? When is a violation of the Code resolved? 13

14. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Mediation If all parties agree Facilitate resolution of issue without inquiry 14

15. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries 2011 Caseload 55 Requests for Guidance 21 Discipline cases –9 pension –6 life –5 casualty –1 health –Evenly split between conduct and practice 15

16. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Contacting the ABCD Letter: 1850 M St., N.W., Suite 300, Washington, D.C. 20036 Telephone: (202) 223-8196; (202) 872- 1948 (fax) Website: www.abcdboard.orgwww.abcdboard.org Contacting any individual ABCD member or ABCD staff (contact information on website) 16

17. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 1: Initiation of Inquiry –Complaint received Reviewed by staff for completeness –Information based Chairs review public document and decide to proceed –Sent to Subject Actuary (“SA”) for response 17

18. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 2: Chairs’ review –Chairs evaluate complaint and response for possible material violation –Chairs decide whether to Seek additional information Dismiss complaint Offer mediation Commence investigation –Notify Subject Actuary, complainant and ABCD 18

19. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 3: Notification –Notify Subject Actuary and complainant, if any, of Chairs’ decision –Notify ABCD at next meeting 19

20. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 4: Investigation –Appoint investigator, subject to challenge by the Subject Actuary –Investigator obtains and reviews documents, interviews individuals involved, prepares report of results, i.e. facts as investigator understands them does not offer opinions or conclusions –Report sent to SA for response 20

21. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 5: ABCD consideration –All documents sent to ABCD members –Case discussed at ABCD meeting –ABCD decides whether to Seek additional information Dismiss (with/without guidance) Counsel the Subject Actuary Conduct a hearing 21

22. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 6: Notification –Notify Subject Actuary, complainant and investigator of decision –Schedule hearing, if so decided 22

23. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 7: Hearing –Conduct fact finding hearing attended by Investigator Subject Actuary Witnesses –Hearing is recorded by a court reporter –Investigator presents results ABCD and SA question investigator –Subject Actuary presents case ABCD questions Subject Actuary 23

24. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 8: Deliberations –ABCD discusses hearing and documents –Decides whether to Dismiss Counsel Recommend discipline Obtain more information, reopen hearing 24

25. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 9: Notification –Notify Subject Actuary, complainant and investigator of decision –If discipline is recommended, transmit to appropriate organization(s) Statement of ABCD findings All documents used by ABCD Transcript of hearing 25

26. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ABCD Inquiry Process Step 10: Member Organization –If discipline is recommended –Conducts “proceedings” hearing according to its rules –May decide to Impose recommended discipline Impose greater level of discipline Impose lower level of discipline Not impose any discipline 26

27. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Studies CASE STUDY #1 27

28. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 Actuarial Firm (AF) has a long-term relationship with M, a management company. AF had many duties at M: completing schedules to be submitted to government entities; calculating pension expenses; drafting correspondence related to the plan; and advising M regarding compliance issues. 28

29. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 M wanted to offer its employees an Early Retirement Plan (ERP). AF prepared estimates of the cost of establishing an ERP (including 8 different ERP designs) and prepared the final draft resolution adopted by the Board to amend the retirement plan to include the ERP. 29

30. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 The Board adopted the amended retirement plan to include the ERP. The ERP provided alternative methods of payment through a single life annuity or a social security leveling option, at the discretion of the employee. AF prepared benefit plan information for each eligible employee, including calculation of benefits under the regular plan and the ERP, with both options. 30

31. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 Four employees retired pursuant to the ERP and began to receive their benefits pursuant to the social security leveling option. AF discovered, a year later, that it had miscalculated the social security leveling payment option for the ERP. 31

32. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 What should the AF actuaries who worked on the assignment do? What Precepts of the COPC apply? Do any ASOPs apply? 32

33. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 AF informed M and instructed it to correct its overpayment. One of the retirees had died and M notified the remaining three retired employees by phone and through a letter drafted under AF’s supervision. AF agreed to pay the retirement fund for the payments made in excess, caused by its miscalculations Retirees were not required to return the overpayments. 33

34. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 Do the AF actuaries who worked on the assignment have any further responsibilities under the COPC? What Precepts of the COPC might apply? Would any ASOPs apply? 34

35. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #1 Have the AF actuaries satisfied their responsibilities under the Code of Professional Conduct? Is AF a fiduciary? What roles, duties, or actions point to a fiduciary status? 35

36. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Studies CASE STUDY #2 36

37. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #2 Actuary provides services to an insurer which is being sold. Actuary established the reserves recorded on the balance sheet at effective date of sale. Subsequent to the effective date of sale, Actuary becomes aware of three large claims: one reported just before the effective date of sale; one which occurred before the effective date but was reported afterward; and one which occurred just after the affective date. 37

38. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #2 The claims were unusual and could not be foreseen when Actuary calculated reserves for effective date of sale. These three claims would have a material impact on Actuary’s reserve estimate. Sales agreement calls for a “true- up” of the balance sheet within 90 days after the effective date of sale. 38

39. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Case Study #2 What should the actuary do? What Precepts apply? Do any ASOPs apply? 39

40. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ACTUARIAL BOARD for COUNSELING and DISCIPLINE QUESTIONS? 40

41. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries ACTUARIAL BOARD for COUNSELING and DISCIPLINE THANK YOU ! 41

42. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Copyright © 2010 by the American Academy of Actuaries Contacting the ABCD Letter: 1850 M St., N.W., Suite 300, Washington, D.C. 20036 Telephone: (202) 223-8196; (202) 872- 1948 (fax) Website: www.abcdboard.orgwww.abcdboard.org Contacting any individual ABCD member or ABCD staff (contact information on website) 42