BEST PRACTICES: Enhancing Reliability of Actuarial Valuations for Pension Plans Flashcards
Pension plan fiduciaries should take steps to obtain additional information that will enhance the reliability of their actuarial valuations.
Why is the actuarial valuation important for pension plans?
It determines the necessary contributions for funding the plan’s benefits and provides information about the plan’s current funded status, affecting the plan’s sustainability.
What fundamental data should be accurate and up-to-date for actuarial valuations?
Census data, changes to plan provisions and administrative procedures, and regular audits of population data including eligibility verification and census accuracy.
What additional services can actuaries provide to enhance valuation reliability?
Actuarial gain/loss analysis, actuarial experience study, actuarial projections, asset/liability study, sensitivity analysis, and analysis of proposed benefit changes.
What is the purpose of an actuarial gain/loss analysis?
To understand differences between the plan’s assumptions and actual experience with pay increases, investment returns, retirement, withdrawal from employment, and other factors, typically done over a single year.
What does an actuarial experience study aim to achieve?
It examines differences between assumed and actual experience over multiple years to identify trends and recommend changes to assumptions if needed.
How do actuarial projections benefit pension plans?
By modeling the plan and projecting its funded status, investment returns, or contributions under different scenarios to understand dynamics and assess risk.
What is the focus of an asset/liability study?
It focuses on the risks associated with the plan’s asset allocation and investment performance, examining changes to asset allocations or testing potential risk management approaches.
What does sensitivity analysis measure in actuarial projections?
The effect of changes in actuarial assumptions on the plan’s funded status or required contributions.
Why is an actuarial analysis of proposed benefit changes recommended?
To understand the cost implications and potential changes in participant behavior before changes are enacted.
