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Thomas Lowman, FSA, EA, MAAA Chief Actuary Bolton Partners, Inc.

MAAC Meeting October 8, 2010 Challenges facing Local Governments in Meeting their Benefit Obligations. Thomas Lowman, FSA, EA, MAAA Chief Actuary Bolton Partners, Inc. Today’s Topics:. Financial Stress (last) GASB Preliminary Views FE/MVL discussion CCA Public Plans Committee (Paul Angelo)

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Thomas Lowman, FSA, EA, MAAA Chief Actuary Bolton Partners, Inc.

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  1. MAAC MeetingOctober 8, 2010Challenges facing Local Governments in Meeting their Benefit Obligations Thomas Lowman, FSA, EA, MAAA Chief Actuary Bolton Partners, Inc.

  2. Today’s Topics: • Financial Stress (last) • GASB Preliminary Views • FE/MVL discussion • CCA Public Plans Committee (Paul Angelo) • Lower Interest Assumption? • Law Suits/Fiduciary Responsibility

  3. GASB Preliminary Views Would change accounting for expense and disclosure • Discount Rate (not risk free) • EAN method • Amortization periods short • Asset smoothing and 15% odd corridor • Cost sharing plan allocation Comments due back on 9/17/10 • Read CCA comments for flavor • AAA has two sets Hearing/Exposure Draft/Final Draft

  4. FE/MVL (MCL) Discussion • Should Valuations be based on expected values or risk free values? • Are benefits risk free (or close to it)? • Debate has been going on for 10 years (gets refined over time) • Law of one price/value to employee/”informs funding”/funding? • SOA Conference in 2009 a. Third issue is risk disclosure (all agree?) • AAA PIC issue • Currently an ASB issue • Will even disclosure hurt?

  5. CCA Public Plans Committee(Paul Angelo) • Why did this committee start (independent of AAA approval process) • Current activities • Two GASB responses • Other activities • Why you should join if involved in public plans

  6. Lower Interest Assumption • 8% is most common assumption • If 8% was right 5 years ago, how can it still be right? • Movement to lower assumptions • Arithmetic vs. Geometric • Do you know which you are using? • Is being right 50% of the time better than being right on average? • Why 50% and not 60%? • Do you know the formula/difference between these two rates?

  7. Financial Stress/Law Suits/Fiduciary Responsibility • EAN Open Group method • Stress leading to changes in opinion of what is and is not protected • Pension envy • Social Security coverage • What is politically easier to cut? • New Hires • 1,000 blue ribbon committees • Benefit cuts are happening now along with increases in employee contributions • OPEB? • Are Trustees making the right choices? • Have you seen the Baltimore City billboard?

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