Actuaries need to be at the centre of efforts to improve the risk analysis applied to US public sector pensions, a panel of experts has recommended
The Blue Ribbon Panel on Public Pension Plan Funding, commissioned by the US Society of Actuaries, published its conclusions this week after a year of deliberations.
It made a series of specific recommendations regarding the financial information schemes should be required to disclose including plan maturity; plan cost; the ratio of contributions paid to recommended contributions; investment risks; and stress tests.
This would help stakeholders make informed decisions about plan funding, said panel chair Bob Stein, former global managing partner of actuarial services at Ernst & Young.
Actuaries should be required to disclose this information and also provide a professional opinion of the reasonableness of the assumptions and methods used in funding the plan, the panel recommended. The Actuarial Standards Board should also consider including these recommendations in Actuarial Standards of Practice.
Stein said: 'Public pension plan funding is a complex issue, with many vexing questions and no easy near-term solutions.
'Taken as a whole, the panel's recommendations will make available to all stakeholders in public pension systems - employees and retirees, plan sponsors an trustees, as well as taxpayers - more reliable and improved information about the financial status of a plan and the risks it face. This should enable the development of a stronger funding programme, more responsive to the rapidly changing environment in which all plans operate.'
Policy decisions on the level of retirement benefits should be left to US states, cities, counties and their employees, he said. The panel had focused on how schemes could keep the promises they had made.
It laid out three principles of an effective public pension funding programme: that the costs of retirement benefits are pre-funded; that today's taxpayers pay a portion of the cost of pension benefits rather than costs being shunted onto future taxpayers; and that costs should be, if possible, stable and predictable.
'The panel recognises that funding entities frequently face significant competing demands on their resources and that the full recommended contribution cannot always be made,' it stated.
'In such circumstances, sponsors should develop an effective funding programme that moves the plan toward a fully funded status in a reasonable period of time.'
