Considering Risk in Public Sector Pension Plans

New Actuarial Professional Standard on Pension Risk Assessments and Disclosures

The Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, known as ASOP No. 51, requires actuaries to identify and assess risks that may reasonably be anticipated to significantly affect a pension plan’s future financial condition.

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Requirements of ASOP No. 51

ASOP No. 51 requires actuaries to identify and assess risks that may reasonably be anticipated to significantly affect a pension plan’s future financial condition.

The goal is to help users of actuarial reports better understand those risks. The new standard applies to annual funding valuations and pricing valuations.

These include Segal Consulting’s annual actuarial valuation and most other types of actuarial calculations. It permits actuaries to use various methods to assess risks.

It also requires actuaries to recommend that a more detailed risk assessment be performed if the actuary judges that it would be significantly beneficial for the plan sponsor to understand those risks.

Identifying Risks to Be Assessed

Investment risk, asset/liability mismatch risk, interest rate risk, longevity and other demographic risks and contribution risk are cited as examples of risks that may reasonably be anticipated to significantly affect a plan’s future financial condition.

The standard does not require the actuary to evaluate the likelihood of contributing entities to make contributions when due, nor does it require the actuary to assess the likelihood or consequences of future changes in applicable law.

How Segal Can Help

Under ASOP No. 51, the assessment can be qualitative or quantitative (based on numerical demonstrations).

Segal’s consultant will work with you to identify and analyze retirement plan risks. Our annual valuation presentations will include a brief discussion of investment risk and other significant risks. In addition, the plan actuary will recommend a more detailed assessment, if appropriate.

Questions? Contact Us

For more information about pension plan risks, ASOP No. 51 or to discuss how Segal Consulting can help you to manage those risks, just get in touch.