The Retirement Report, Winter 2021

Q&A—An Update on the Academy’s Pension Committee

BlackThe American Academy of Actuaries’ Pension Practice Council oversees the Academy’s public policy work on pension and Social Security topics, with work delegated to the Pension Committee, the Public Plans Committee, the Multiemployer Plans Committee, and the Social Security Committee, and others. These committees each work cooperatively to lend their actuarial expertise to a broad array of public policy topics within their respective jurisdictions.

The Pension Committee in particular is typically very active and will continue to be so into 2021 on single-employer plan issues. The Retirement Report did a Q&A with Pension Committee Vice Chairperson Elena Black on some of the current key topics being addressed by the committee. 

Can you talk a bit about the focus of the Pension Committee?

The committee focuses on private-sector, single-employer pension topics. These topics can be wide-ranging and include pension funding and financial reporting; risk management; actuarial modeling; currently proposed, and emerging legislation and regulation; and the implications of extreme events, such as the pandemic, just to name a few. Our potential audiences are policymakers, the media, Academy membership, and the public at large.

The committee’s membership is experienced and is constituted of various types of pension practitioners, consisting of pension consultants from actuarial consulting firms (both large and small), pension research actuaries, and academics. Often, our actuarial perspective and expertise is shared via Academy publications conveying the committee’s objective analysis on topics important to the policymakers and stakeholders of U.S. pension plans.

The committee actively consults with policymakers on the potential implications of legislation and regulation where the actuarial perspective may be particularly relevant and instructive. We regularly comment to government bodies on pending retirement legislation and regulation. For example, last year we wrote to the IRS in response to its request for comments on certain issues related to a pending mortality-related regulation for private pension plans.

Another focus of the committee is to carefully review and comment on new and revised actuarial standards of practice (ASOPs). And we frequently develop practice notes that may be associated with current or newly introduced ASOPs. For example, in 2020 the committee published a practice note, ASOP No. 51: Risk Assessment in Practice, on the ASOP which became effective in 2018.

We also just published, for exposure to the Academy membership, a draft practice note Modeling – For Pension Actuaries related to the newly issued ASOP No. 56, Modeling, which applies to all actuaries effective Oct. 1, 2020. We hope that pension actuaries will find useful the analysis and examples provided in this new, not yet final, practice note.

Our committee has been doing such work for many years and so, in addition to practice notes on new topics, we regularly review and revise existing practice notes to incorporate emerging technologies or evolving external circumstances. For example, the committee is currently working on revising the Selecting and Documenting Mortality Assumptions for Pensions practice note, last issued in 2015, to recognize more recent relevant professional guidance and incorporate new pension mortality-related information.

In this example, the practice note’s topics touches on issues of relevance to all types of pension plans, and so we have coordinated among Pension Practice Council committees to ensure that Academy volunteers from a single employer pension, public plans, and multiemployer plans background actively participate in order to reflect all perspectives.

Following the publication of a practice note or an issue brief, the Academy will often host a webinar on the topic, so please be on the lookout for announcements on these events throughout the year.

The committee released an issue brief, Impact of COVID-19 on Pension Plan Actuarial Experience and Assumptions, Including Mortality, last fall. Are there any updates on the issues covered in it you can share since then or into 2021, and/or plans to update the issue brief?

Often, the topics we address in practice notes or issue briefs can be anticipated and planned for in advance. New ASOPs, legislation or regulation, or other pension-related developments are frequently foreseeable and can fit nicely into our committee’s workflow.

This was clearly not the case last year with our COVID-19 issue brief. As the devastating pandemic experience started emerging early in 2020, we felt it timely to share with the public our specific expertise generally on mortality-related aspects of the pandemic, as well as our insights as to the potential implications for U.S. pension plans. We put to work our considerable familiarity with modeling, deep knowledge of specific pension risk issues that may be triggered by a pandemic, and our combined knowledge of emerging pension plans’ experience. Once again, this issue brief was a result of a coordinated effort with Academy volunteers with different backgrounds and the Pension Committee, in order to illuminate potentially different and divergent issues, relevant to public plans, private plans, and multiemployer plans.

The issue brief on COVID-19 was written when there were slightly over 200,000 U.S. COVID-19 deaths. Now that we are beyond half a million deaths,  with no clear indications of ultimate fatalities, we need to look at the emergence of additional pension plan implications. So the answer on the committee’s plans to update the issue brief is clearly a “yes.” The committee will be discussing whether to move ahead on another issue brief on this topic or an update of it, and if so, will likely follow  up with a webinar to discuss these emerging issues, in the second half of this year.

Can you describe some of the projects the Pension Committee is working on now and plans to publish soon?

At any given time, we are working on multiple projects. In addition to what I have already discussed, I will mention one more: The practice note related to “difficult-to-measure” pension plan designs looking at how actuaries approach assigning value to such plan features.

This topic is partially addressed in ASOP No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, which provides guidance on plan provisions that are difficult to measure. By “difficult to measure,” it is meant that plan provisions for which traditional valuation techniques may not be sufficient to capture their value. These plan designs could introduce asymmetry, or benefits depending on external metrics, such as asset performance or a plan’s funded status, or benefits depending on a “choice” provision that may introduce “optionality.” Valuing such plan provisions could require sophisticated valuation techniques, such as stochastic modeling, which is not how pension actuaries traditionally value pension plan obligations.

It is hoped that this practice note will be of great interest to Academy pension members, and as with other releases, we will explore a webinar presentation that features knowledgeable speakers, who may have been major contributors to the practice note.

Intersector Group Releases Notes From PBGC Meeting

The Intersector Group released notes of its November meeting (telephonically) with the Pension Benefit Guaranty Corporation (PBGC).  Among the  topics discussed according to the notes include multiemployer plans; end-of-year events such as mergers, spinoffs, and annuities; standard terminations; distress terminations and involuntary terminations, among others.