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May 15, 2012

Comments on Proposed Legislation

The actuarial perspective should be considered when looking at measures to stabilize required pension plan contributions based on funding targets established by the Pension Protection Act (PPA), the Academy's Pension Practice Council wrote in a May 2 letter to members of the House and Senate appointed to the conference committee for S. 1813, Sec. 40312, Pension Funding Stabilization.

Section 40312 of the Senate transportation bill proposes to add a corridor based on the 25-year average of corporate bond rates, which would stabilize required pension contributions by smoothing inputs (discount rates). This methodology would effectively raise interest rates used to determine plan liabilities by 100 to 150 basis points.

If the conference committee wants to create more stability in contributions for plan sponsors, the council wrote, it could be accomplished better by smoothing outputs (contribution requirements) rather than inputs (discount rates).

Comments on Regulatory and Reporting Proposals

The Pension Committee in a May 3 letter to the Internal Revenue Service (IRS) and the Department of the Treasury said it supports recently proposed regulations that would better facilitate partial annuity distributions. The committee also provided suggestions on transition issues and on the proposed structure of IRC Section 417(e) exemptions.  In a second letter to the IRS and Treasury, the committee wrote that it is encouraged by many aspects of the proposed regulation on longevity annuity contracts that would allow the use of retirement funds as a vehicle to protect against longevity risk. It also recommended several modest changes to further improve the proposals, such as allowing defined benefit pension plans to offer qualified longevity annuity contracts.

In a joint letter to the Governmental Accounting Standards Board (GASB), the Pension Accounting Committee and Public Plans Subcommittee responded to some of the questions posed in GASB’s Preliminary Views on Economic Condition Reporting: Financial Projections. Their comments addressed projections of pension and postretirement obligations with a particular focus on better communication of the variability of outcomes.

Recent ASOP Exposure Drafts Under Review

The Pension Committee is reviewing the recently approved exposure draft of Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, and a second exposure draft of ASOP No. 27, Selection of Economic Assumptions for Measuring Pension Obligations. The committee plans to submit comments on the exposure drafts to the Actuarial Standards Board by the May 31, 2012, deadline. The joint SOA/Academy Pension Finance Task Force and Joint Committee on Retiree Health also will be submitting comments on the ASOP No. 4 exposure draft.

New Publication

Campaign 2012: A Guide to Analyzing the Questions Candidates Should Answer About Social Security.

The Social Security Committee recently released a 2012 campaign guide that examines proposed changes to the Social Security system and poses questions that voters should be asking presidential and congressional candidates about how they plan to address the program’s solvency issues.

Upcoming Publications

The Social Security Committee is in the process of completing an updated version of the Understanding the Assumptions Used to Evaluate Social Security’s Financial Condition issue brief. The Social Security Board of Trustees, the Congressional Budget Office, and outside experts rely on assumptions to project the program’s financial condition. The issue brief describes the major assumptions used in these projections and how variations affect the results. The issue brief encourages complete disclosure of the assumptions used and emphasizes the importance of applying assumptions consistently when comparing alternative proposals to reform the Social Security program.

The 2012 Social Security Trustees Report was released on April 23. The Academy’s Social Security Committee currently is updating an issue brief that outlines public policy options to address Social Security’s long-term financial soundness based on the new information presented in the trustees’ report. Look for it later this month.

The Pension Finance Task Force is examining several recently published papers related to discount rates. One paper prepared by the Institute and Faculty of Actuaries in the United Kingdom, Developing a Framework for the Use of Discount Rates in Actuarial Work, offers a thorough and thoughtful treatment of the topic. The task force plans to summarize the paper’s questions, ideas, and conclusions and create a document that will inform the Academy’s public policy positions and keep actuaries up to date on the latest thinking in this area. Look for this publication later this year.


Item of Interest for Enrolled Actuaries

The Joint Board for the Enrollment of Actuaries has published a Frequently-Asked-Questions document that addresses qualifying programs for continuing education credit.

Recent Events

Lifetime Income Risk Webinar
The Lifetime Income Risk Joint Task Force presented a webinar on March 7 on the risks of inadequate lifetime income, current options to address the risks, and the range of policy solutions to help workers and retirees better manage their lifetime income needs in retirement. The task force was formed in February 2011 to address the risks and related issues of inadequate lifetime income and to educate the public, lawmakers, regulators, and other stakeholders about the risks. The webinar was part of the Academy’s ongoing initiative to advance the discussions surrounding lifetime income. The task force also plans to release a white paper later this spring. If you missed the March 7 webinar, you can download the slides free or order a recording of the lifetime income webinar for a small fee.

2012 EA Meeting
More than 700 enrolled actuaries gathered in Washington for the 37th annual Enrolled Actuaries Meeting, March 25–28. Meeting sessions examined various aspects of pension plan funding and administration, new rulings and regulations, professionalism issues, and trends in mortality and mortality improvement. Look for recaps of many of the sessions in the summer 2012 Enrolled Actuaries Report. Session recordings and handouts—as well as the 2012 Gray Book—can be purchased online.


2012 Pension Symposium
After the EA meeting, more than 45 actuaries participated in an in-depth examination of longevity, longevity risk, and the possibilities and pitfalls of lifetime income as the key driver for longevity risk mitigation. See the summer Enrolled Actuaries Report to learn more about this year’s pension symposium.