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How an Independent ERISA Actuary Assists a Public Plan Sponsor

Public Pension Plans are undergoing a very stressful period.  The public entities have made promises to their employees to provide retirement benefits, but have not built up sufficient assets to keep those promises.

The ratio of the market value of assets to the actuarial liability of the plan must steadily increase over time to enable the government entity to pay for the promises made to employees and their beneficiaries.  However, the government entity cannot simply increases taxes to bring assets to a more prudent level. 

We propose a three step review of the pension plan to lead it to solvency.

• Revisit the discount interest rate to make certain it is achievable
• Revisit the allocation of the investments to reduce risk
• Anticipate liability increases when promotions or large salary increases of older plan participants are about to take place.

The actuary must coordinate between the plan sponsor and the asset manager to ensure that the goals of the former are being realized by the latter.  Too often, the actuary calculates the liabilities and the Annual Required Cost and leaves the plan sponsor to figure things out until the plan requires the same calculations for the following year.  When this pattern is left unchecked, the plan sponsor and all plan participants suffer.