Transcript
Page 1: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

LAPERS Presentation

Gary S. Curran, FCA, MAAA, ASA, EA

CONSULTING ACTUARY

 

 G. S. Curran & Company, LTD.10555 N. Glenstone PlaceBaton Rouge, LA 70810 (225) 769-4825

September 15, 2013

Page 2: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Abbreviations

• NC = Normal Cost

• AL = Accrued Liability

• UAL = Unfunded Accrued Liability

Page 3: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

General Principles

Page 4: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Present Value of Benefits

AssetsPresent Value of Future Contribu-tions

• Benefits are funded with:

• Money the plan has now

• Money the plan will collect in the future

Page 5: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Present Value of Benefits

Assets

Present Value of Future Normal Costs

UAL

• Money that will be collected in the future can either be in the form of future normal costs or payments on the unfunded accrued liability

Page 6: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Present Value of Benefits

Assets

Current Year Normal Cost

Present Value of Future Normal CostsUAL

Amortization Payment

• This year’s allocated share of future normal costs is in fact the “Normal Cost” as given in the valuation

• This year’s allocated share of future UAL payments is in fact the “Amortization Payment” as given in the valuation

Page 7: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• “No Free Lunch”

• Pay less now / Pay more later

• Pay more now / Pay less later

Page 8: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• 2 cost elements

• Normal Cost

• Payments on Unfunded Accrued Liability

Page 9: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• 2 types of methods

• Use assets to determine UAL

• Use assets to determine Future Normal Costs

Page 10: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• Type I : Use assets to determine UAL

• Projected Unit Credit

• Entry Age Normal

Page 11: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• Projected Unit Credit

• NC is based on “Credited Projected Benefits” for the year

• AL is the accumulated “Credited Projected Benefits”

• UAL = Accrued Liability – Assets

Page 12: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• Entry Age Normal

• NC is based on payments as level percentage of pay

• AL is based on accumulated Normal Cost

• UAL = Accrued Liability – Assets

Page 13: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• Type II : Use assets to determine Future Normal Costs

• Aggregate

• Frozen Entry / Attained Age Normal

Page 14: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• Aggregate

• NC is based on allocated share of the difference between Present Value of Benefits and the assets

• AL is set equal to assets

• UAL = 0

Page 15: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• Frozen Attained / Entry Age Normal

• NC is based on allocated share of the difference between Present Value of Benefits and sum of assets & UAL

• AL is set equal to UAL + Assets

• UAL is the unamortized portion of a prior UAL determined under Projected Unit Credit or Entry Age Normal

Page 16: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• All funding methods, when properly applied, will accumulate sufficient assets over the working career of members to provide for retirees benefits

• The ultimate cost of a plan is independent of the funding method selected and depends on benefit levels and investment earnings

• Only to the extent that some methods accumulate assets more rapidly than others and these produce greater investment earnings do different cost methods affect total contributions

• Cost methods which only fund the “earned” benefit each year (i.e. Projected United Credit) will see costs rise on an individual basis as members get nearer to retirement

Page 17: LAPERS Presentation Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225)

Funding Methods

• The objective of the Entry Age Normal Cost Method is to produce normal costs which are level as a percentage of payroll

• All gains and losses under Entry Age Normal and Projected Unit Credit will produce additional Unfunded Liability credits or debits

• Gains or losses under the Aggregate or Frozen methods will not affect the unfunded accrued liability but will increase or decrease normal costs

• Cost methods with lower current costs will have higher future costs


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