Retirement Account Third Quarter 2011

August 19, 2011

Welcome to Retirement Account, the Pension Practice Council’s new quarterly email newsletter designed to keep you up to date on Academy activity in the pension arena. Featuring short descriptions of—and links to—recent practice council work products, including comment letters, practice notes, publications, and legislative outreach, Retirement Account will supplement the detailed reports on pension activity that you already receive each month in the Actuarial Update and each quarter in the Enrolled Actuaries Report.

If you have any questions, suggestions, or comments about Retirement Account, please contact Jessica Thomas, the Academy’s senior pension policy analyst at Thomas@actuary.org [1] or Olivia Marshall, the Academy’s managing editor for member publications at Marshall@actuary.org [2].

Comments on Regulatory Issues

The Pension Committee, the Pension Practice Council, and the Public Plans Subcommittee commented on a number of regulatory issues under active consideration in recent letters to policymakers.

	The Pension Committee pointed out potential implications of expected regulatory guidance on the definition of "plan-related expenses expected to be paid from plan assets" under Internal Revenue Code (IRC) Section 430(b). In a May 24 letter [3] to the Internal Revenue Service (IRS) and the Department of the Treasury, the committee discussed minimum funding, funding target attainment percentage (Section 430), and adjusted funding target attainment percentage (Section 436) for mergers and spinoffs, and recommended changes in these areas.
	In a June 1 letter [4] to the IRS and Treasury, the Pension Committee commented on the need for guidance on merger and spinoff issues related to the measurement of assets and liabilities for pension funding purposes and funding ratios.
	The Pension Committee raised concerns about proposed modifications to registration requirements for a Preparer Tax Identification Number (PTIN) that would affect work traditionally done by pension actuaries. In its June 13 letter [5] to the IRS, the committee also requested lower PTIN renewal fees for enrolled actuaries.
	In a June 15 letter [6], the Pension Practice Council and the Public Plans Subcommittee asked the Securities and Exchange Commission (SEC) to exclude enrolled actuaries and members of U.S.-based actuarial organizations that have adopted the Code of Professional Conduct from the definition of "municipal advisors" when they are providing services governed by actuarial standards and the code. The committees noted that others who are governed by professional codes of conduct (such as attorneys) are exempted from registering as municipal advisors. The committees also requested that public pension plans be excluded from the definition of "investment strategies." The SEC’s broad interpretation of the definition includes "plans or programs for the investment of the proceeds of municipal securities…." This would include public pension plans that directly or indirectly could be the recipients of the proceeds of municipal securities.

Capitol Hill Briefing

The recession and a slow recovery continue to weaken projected Social Security finances. That was the message that Janet Barr, chairperson of the Academy’s Social Insurance Committee, and Stephen Goss, chief actuary at the Social Security Administration, brought to policymakers at a May 26 Capitol Hill briefing on the 2011 Social Security Trustees Report. The report projects that the Social Security trust fund will run out of money in 2036—one year sooner than was predicted in last year’s report. Projections also indicate that incoming revenues will cover only 74 to 77 percent of the scheduled benefits by 2036. Barr and Goss presented [7] an overview of the Academy’s new issue brief, An Actuarial Perspective on the 2011 Social Security Trustees Report [8], and explained the negative consequences of waiting to initiate reform. They also discussed several proposals to address the program’s long-term financial challenges. See the June Update [9] for more information about the briefing.

New Publications

The Pension Accounting Committee in May released a practice note, Working with Pension Plan Auditors [10], on current practices relevant to the audit of pension plan financial information subject to U.S. generally accepted accounting principles (U.S. GAAP). The practice note is designed to help actuaries work more effectively with auditors by providing a better understanding of:

	Information necessary for completing the review of year-end measurements;
	The questions auditors ask;
	Ways in which responding actuaries, reviewing actuaries, auditors, and companies can work together to smooth the process.

While the practice note includes answers to common questions, it is not intended to define practice, set standards, or be audit guidance. See the June Update [9] for more about the practice note.

An update of the practice note, Selecting and Documenting Mortality Assumptions for Pensions, will be released later this summer.

ASOP Reviewed

Responding to specific questions issued by the Actuarial Standards Board (ASB), the Pension Committee has recommended revisions [11] to Actuarial Standard of Practice (ASOP) No. 27, Selection of Economic Assumptions for Measuring Pension Obligations. In its May 6 letter [12], the committee suggested revising Section 3.7 to clarify what "no explicit link between an investment return and discount rate" means, and changing Section 3.6.3(j) to clarify that both arithmetic and geometric returns are permissible and either may be appropriate depending on the purpose and application of a given return assumption. The committee also commented on other proposed revisions, including the appropriate effective date, selecting assumptions, subsequent events, and rationales for assumptions. The Joint Academy/SOA Pension Finance Task Force also submitted comments [13] on ASOP No. 27 to the ASB.