How Public Pension Plans Can Develop and Maintain Actuarially Responsible Funding Policies: Four Perspectives

Source: Paul Angelo and Brad Ramirez, HR News, Vol. 80 no. 12, December 2014
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As HR managers for governmental entities know, the funding of U.S. public sector pension plans has become a high-profile topic. This has been due to many factors, including historically high volatility of investment returns, budgeting pressures experienced by sponsoring entities and increased scrutiny of plans that have not properly funded their obligations. Another important influence has been a clarification from the Governmental Accounting Standards Board (GASB) that financial reporting standards do not constitute funding policy guidance, which left something of a regulatory vacuum when it comes to public pension funding policies.

This is leading many public pension plan administrators and sponsors to review their existing funding policies and—in many cases for the first time—to record them in comprehensive statements of funding policies used for setting actuarially determined contributions. Organizations within the public pension industry, including three of the major professional actuarial groups, have responded to these developments by issuing guidance for establishing and maintaining actuarially responsible funding By Paul Angelo and Brad Ramirez policies. While this effort is ongoing, the guidance published to date includes:
• October 2014 Conference of Consulting Actuaries’ Public Plans Community white paper titled “Actuarial Funding Policies and Practices for Public Pension Plans” (referred to subsequently as the CCA PPC White Paper)
• February 2014 American Academy of Actuaries issue brief titled “Objectives and Principles for Funding Public Sector Pension Plans” (the AAA Issue Brief)
• “Report of the Blue Ribbon Panel on Public Pension Plan Funding” published in February 2014 by an independent panel commissioned by the Society of Actuaries (the BRP/SOA Report)
• March 2013 Government Finance Officers Association best practice report titled “Core Elements of a Funding Policy” (the GFOA Best Practice).

This article discusses the similarities among these policy papers and points out notable differences. It is important for HR managers to understand the issues that affect retirement plans for the people they serve….