Proposed Revision of Actuarial Standard of Practice No. 35
Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations
STANDARD OF PRACTICE
TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in the Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations
FROM: Actuarial Standards Board (ASB)
SUBJ: Proposed Revision of Actuarial Standard of Practice (ASOP) No. 35
This document is an exposure draft of a proposed revision of ASOP No. 35, Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations.
Please review this exposure draft and give the ASB the benefit of your comments and suggestions. Each written response and each response sent by e-mail to the address below will be acknowledged, and all responses will receive appropriate consideration by the drafting committee in preparing the final document for approval by the ASB.
The ASB accepts comments by either electronic or conventional mail. The preferred form is e-mail, as it eases the task of grouping comments by section. However, please feel free to use either form. If you wish to use e-mail, please send a message to email@example.com. You may include your comments either in the body of the message or as an attachment prepared in any commonly used word processing format. Please do not password protect any attachments. Include the phrase “ASB COMMENTS” in the subject line of your message. Please note: Any message not containing this exact phrase in the subject line will be deleted by our system’s spam filter.
If you wish to use conventional mail, please send comments to the following address:
ASOP No. 35 Revision
Actuarial Standards Board
1850 M Street, NW, Suite 300
Washington, DC 20036
The ASB posts all signed comments received to its website to encourage transparency and dialogue. Anonymous comments will not be considered by the ASB nor posted to the website. The comments will not be edited, amended, or truncated in any way. Comments will be posted in the order that they are received. Comments will be removed when final action on a proposed standard is taken. The ASB website is a public website and all comments will be available to the general public. The ASB disclaims any responsibility for the content of the comments, which are solely the responsibility of those who submit them.
Deadline for receipt of responses in the ASB office: January 31, 2014
The ASB provides coordinated guidance for measuring pension and retiree group benefit obligations through the series of ASOPs listed below.
1. ASOP No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions
2. ASOP No. 6, Measuring Retiree Group Benefit Obligations
3. ASOP No. 27, Selection of Economic Assumptions for Measuring Pension Obligations
4. ASOP No. 35, Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations
5. ASOP No. 44, Selection and Use of Asset Valuation Methods for Pension Valuations
The Pension Committee and the Retiree Group Benefits Subcommittee are reviewing and, in many cases, revising these standards. Additionally, the Pension Committee issued a discussion draft in June 2012 of an entirely new standard on pension risk that provides guidance on the assessment and disclosure of such risk. The Pension Committee expects a proposed standard on risk to be ready for comment in 2014.
Some commentators stated that having all pension and retiree group benefit obligations guidance in one standard would be preferable to having guidance in several different standards. While the Pension Committee feels that the idea of a consolidated standard is worth investigating, the issues currently under review need to be resolved before consolidation can be considered.
In September 2010, the ASB issued a revised ASOP No. 35, which was revised again in May 2011 for deviation language. With the September 2010 release of ASOP No. 35, the ASB noted that there were sections of ASOP No. 35 that would need to be reviewed for consistency with ASOP No. 27 once that standard was revised. Now that ASOP No. 27 is revised, the ASB is moving forward with changes to ASOP No. 35.
The most significant modifications contained in this exposure draft are as follows:
1. The guidelines for a reasonable assumption in section 3.3.5 are now consistent with the guidelines contained in ASOP No. 27.
2. Section 3.4 acknowledges that a range of reasonable assumptions is possible.
3. The selection of demographic assumptions is at the heart of the work of the pension actuary, but actuarial reports often say little or nothing about what the actuary did in the selection process or why. The guidance in this exposure draft regarding the disclosure of rationale behind selected assumptions is intended to fill this gap and is consistent with the guidance provided in ASOP No. 27. Section 4.1.2 requires the actuary to disclose the information and analysis used in selecting each demographic assumption that has a significant effect on the measurement. Section 4.1.3 requires the actuary to include an explanation of the information and analysis behind any change in a nonprescribed assumption. The disclosure may be brief but should be pertinent to the plan’s circumstances.
4. Other changes in the exposure draft have been made to improve consistency with ASOP Nos. 4, 6, and 27, and ASOP No. 41, Actuarial Communications.
Request for Comments
The ASB is issuing this revised version of ASOP No. 35 as an exposure draft to provide members of actuarial organizations governed by the ASOPs and other interested persons an opportunity to comment. The ASB encourages comments on any aspect of this exposure draft.
The ASB reviewed the draft at the September 2013 meeting and approved its exposure.
Pension Committee of the ASB
Gordon C. Enderle, Chairperson
Mita D. Drazilov, Vice Chairperson C.
David Gustafson Alan N. Parikh
Fiona E. Liston Mitchell I. Serota
A. Donald Morgan IV Judy K. Stromback
Christopher F. Noble Virginia C. Wentz
Actuarial Standards Board
Robert G. Meilander, Chairperson
Beth E. Fitzgerald Thomas D. Levy
Alan D. Ford Patricia E. Matson
Patrick J. Grannan James J. Murphy
Stephen G. Kellison James F. Verlautz
The ASB establishes and improves standards of actuarial practice. These ASOPs identify what the actuary should consider, document, and disclose when performing an actuarial assignment. The ASB’s goal is to set standards for appropriate practice for the U.S.
Section 1. Purpose, Scope, Cross References, and Effective Date
This standard does the following:
a. provides guidance to actuaries in selecting (including giving advice on selecting) demographic and other noneconomic assumptions for measuring obligations under defined benefit pension plans;
b. supplements the guidance in Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, that relate to the selection and use of demographic and other noneconomic assumptions; and
c. supplements the guidance in ASOP No. 6, Measuring Retiree Group Benefit Obligations, that relate to the selection and use of demographic and other noneconomic assumptions.
This standard applies to actuaries when they are selecting demographic and all other assumptions not covered by ASOP No. 27, Selection of Economic Assumptions for Measuring Pension Obligations, to measure obligations under any defined benefit pension plan that is not a social insurance program as described in section 1.2, Scope of ASOP No. 32, Social Insurance, unless an ASOP on social insurance explicitly calls for application of this standard. Measurements of defined benefit pension plan obligations include calculations that assign plan costs to time periods, actuarial present value calculations, and estimates of the magnitude of future plan obligations. Measurements of pension obligations do not generally include individual benefit calculations, individual benefit statement estimates, or nondiscrimination testing.
To the extent that the guidance in this standard may conflict with ASOP Nos. 4 or 6, ASOP Nos. 4 or 6 will govern. If a conflict exists between this standard and applicable law (statutes, regulations, and other legally binding authority), the actuary should comply with applicable law.
If the actuary departs from the guidance set forth in this standard in order to comply with applicable law or for any other reason the actuary deems appropriate, the actuary should refer to section 4.
The actuary should use the guidance set forth in this standard whenever the actuary has an obligation to assess the reasonableness of a prescribed assumption. The actuary’s obligations with respect to prescribed assumptions are governed by ASOP Nos. 4, 6, and 41, Actuarial Communications, which address prescribed assumptions and methods.
Throughout this standard, any reference to selecting demographic and other noneconomic assumptions also includes giving advice on selecting demographic and other noneconomic assumptions. For instance, the actuary may provide advice on selecting demographic and noneconomic assumptions under US GAAP or Governmental Accounting Standards even though another party is ultimately responsible for selecting these assumptions. This standard applies to the actuarial advice given in such situations, within the constraints imposed by the relevant accounting standards.
1.3 Cross References
When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should consider the guidance in this standard to the extent it is applicable and appropriate.
1.4 Effective Date
This standard will be effective for any actuarial work product with a measurement date on or after twelve months after adoption by the Actuarial Standards Board (ASB).
Section 2. Definitions
The terms below are defined for use in this actuarial standard of practice.
2.1 Assumption Format
The form in which a particular demographic assumption will be used or expressed. In some cases, the assumption will take the form of a table where the probability of the occurrence of a given event depends on parameters such as gender, age, service, or calendar year. In other cases, the assumption may be a point estimate, implying 100% probability of occurrence of a given event at the stated point. An example of a point estimate assumption is an assumption that 100% of the population will retire at age 62. The assumption format may include different tables or point estimates for different segments of the covered population.
2.2 Assumption Universe
For each demographic assumption, a universe consisting of the possible options that the actuary might reasonably use for the specific assumption. For example, an assumption universe for a mortality assumption might reasonably include relevant published or proprietary mortality tables and possible adjustments, such as projections of mortality improvement. For some pension plans, an assumption universe for a specific assumption might reasonably include a table or factors developed specifically for that plan.
2.3 Demographic Assumptions
Demographic and all other noneconomic assumptions (i.e., those assumptions not covered in ASOP No. 27), unless explicitly stated otherwise.
2.4 Measurement Date
The date as of which the value of the pension obligation is determined (sometimes referred to as the “valuation date”).
2.5 Measurement Period
The period subsequent to the measurement date during which a particular demographic assumption will apply in a given measurement.
2.6 Prescribed Assumption or Method Set by Another Party
A specific assumption or method that is selected by another party, to the extent that law, regulation, or accounting standards give the other party responsibility for selecting such an assumption or method. For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is a prescribed assumption or method set by another party.
2.7 Prescribed Assumption or Method Set by Law
A specific assumption or method that is mandated or that is selected from a specified range or set of assumptions or methods that is deemed to be acceptable by applicable law (statutes, regulations, and other legally binding authority). For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is not a prescribed assumption or method set by law.
Section 3. Analysis of Issues and Recommended Practices
The actuary should use professional judgment to estimate possible future outcomes based on past experience and future expectations and select assumptions based upon application of that professional judgment. The actuary should select reasonable demographic assumptions in light of the particular characteristics of the defined benefit plan that is the subject of the measurement. For any given measurement, the actuary may be able to identify two or more reasonable assumptions for the same contingency. In some instances, the actuary may present several results to illustrate the effect of alternative reasonable assumptions.
3.2 Types of Demographic Assumptions
The types of demographic assumptions used to measure pension obligations may include the following:
b. termination of employment;
c. mortality and mortality improvement;
d. disability and disability recovery;
e. election of optional forms of benefits; and
f. other assumptions such as administrative expenses; household composition; marriage, divorce, and remarriage; open group assumptions; hours of service; transfers; and assumptions regarding missing or incomplete data.
3.3 Demographic Assumption Selection Process
The actuary should follow the process below for selecting demographic assumptions, as applicable. The actuary need not follow this complete process at each measurement date for each assumption if, in the actuary’s professional judgment, previously selected assumptions continue to be reasonable (see section 3.9).
3.3.1 Identify the Types of Assumptions
The actuary should identify the types of demographic assumptions to use for a specific measurement. In doing so, the actuary should consider the following:
a. the purpose and nature of the measurement;
b. the plan provisions or benefits and factors that will affect the timing and value of any potential benefit payments;
c. the characteristics of the obligation to be measured (such as measurement period, pattern of plan payments over time, open or closed group, and volatility);
d. the contingencies that give rise to benefits or result in loss of benefits;
e. the materiality of each assumption; and
f. the characteristics of the covered group.
Not every contingency requires a separate assumption. For example, for a plan that is expected to provide benefits of equal value to employees who voluntarily terminate employment or become disabled, retire, or die, the actuary may use an assumption that reflects some or all of the above contingencies in combination rather than selecting a separate assumption for each.
3.3.2 Consider the Relevant Assumption Universe
The actuary should consider the assumption universe relevant to each type of assumption identified in section 3.3.1. This may include tables or factors particular to the given plan as well as general tables, factors, and modifications to the tables that are available to actuaries. Sources of information relevant to many demographic assumptions include the following:
a. experience studies or published tables based on experience under uninsured plans and annuity contracts, or based on any other populations considered representative of the group at hand;
b. relevant plan or plan sponsor experience, to the extent that it is credible, which may include analyses of gains or losses by source;
c. studies or reports of the effects of plan design, specific events (for example, shutdown), economic conditions, or sponsor characteristics on the demographic assumption under consideration; and
d. studies or reports of general trends relevant to the type of demographic assumption in question (for example, mortality improvement in the United States).
3.3.3 Consider the Assumption Format
The actuary should consider the appropriate format for each demographic assumption. Factors that affect format specification include the following:
a. the degree to which the assumption format may affect the results;
b. the availability of tables, data, or information relevant to the assumption being selected;
c. the degree to which the assumption format has the potential to model anticipated plan experience;
d. the size of the covered population; and
e. the degree to which a parameter (such as gender, age, service, or calendar year) is anticipated to affect experience.
In many situations it is appropriate for the format to include assumptions for different segments of the covered population. For example, it may be appropriate to have different mortality tables for males and females or different turnover tables for salaried and hourly employees.
3.3.4 Select the Specific Assumptions
The actuary should select each demographic assumption from the appropriate assumption universe. In all cases, the actuary should consider the materiality of each assumption selected and the consequences of experience deviating significantly from the selected assumption. The actuary should consider measurement-specific factors when selecting assumptions. Examples of such factors are as follows:
a. the purpose and nature of the measurement. For example, a cash flow projection may require more refined assumptions than a liability measure;
b. any features of the plan design or change in the plan design that may influence the assumption. For example, the introduction of an early retirement subsidy could influence the plan’s incidence of retirement; under these circumstances, in order to measure the incremental cost associated with this change, the retirement assumption for the proposed plan provision may differ from the retirement assumption for the current provision;
c. appropriate experience from the specific plan and other relevant sources; and
d. relevant factors known to the actuary that may affect future experience, such as the economic conditions of the area or industry, availability of alternative employment, or the human resources policy or practices of the employer.
Specific experience of the covered group or other groups with similar characteristics may be useful in forming a judgment about future expectations. However, the actuary should not give undue weight to past experience or to experience that is not sufficiently credible. For example, if recent rates of termination and retirement were largely attributable to a one-time workforce reduction, it may be unreasonable to assume that such rates will continue over the measurement period.
3.3.5 Select a Reasonable Assumption
Each demographic assumption selected by the actuary should be reasonable. For this purpose, an assumption is reasonable if it has the following characteristics:
a. It is appropriate for the purpose of the measurement;
b. It reflects the actuary’s professional judgment;
c. It takes into account historical and current demographic data that is relevant as of the measurement date;
d. It reflects the actuary’s estimate of future experience, the actuary’s observation of the estimates inherent in market data (if any), or a combination thereof; and
e. It has no significant bias (i.e., it is not significantly optimistic or pessimistic), except when provisions for adverse deviation or plan provisions that are difficult to measure are included and disclosed under section 3.10.1 or when alternative assumptions are used for the assessment of risk.
3.4 Range of Reasonable Assumptions
The actuary should recognize the uncertain nature of the items for which assumptions are selected and, as a result, may consider several different assumptions equally reasonable for a given measurement. The actuary should also recognize that different actuaries will apply different professional judgment and may choose different reasonable assumptions. As a result, a range of reasonable assumptions may develop, both for an individual actuary and across actuarial practice.
3.5 Specific Considerations
When performing the assumption selection process described in section 3.3, the actuary should be aware of specific considerations that may apply to the selection of individual assumptions, as discussed below.
The actuary should consider factors such as the following:
a. the plan design, where specific incentives may influence when participants retire;
b. the design of, and date of anticipated payment from, social insurance programs (for example, Social Security or Medicare); and
c. the availability of other employer-sponsored postretirement benefit programs (for example, postretirement health coverage or savings plan).
3.5.2 Termination of Employment
The actuary should consider factors such as the following:
a. employer-specific or job-related factors such as occupation, employment policies, work environment, unionization, hazardous conditions, and location of employment; and
b. plan provisions, such as early retirement benefits, vesting schedule, or payout options.
3.5.3 Mortality and Mortality Improvement
The actuary should consider factors such as the following in the selection of mortality and mortality improvement assumptions:
a. the possible use of different assumptions before and after retirement (for example, in some small plan cases a reasonable model for mortality may be to assume no mortality before retirement);
b. the use of a different assumption for disabled lives, which in turn may depend on the plan’s definition of disability and how it is administered; and
c. the use of different assumptions for different participant subgroups and beneficiaries.
The actuary should reflect the effect of mortality improvement both before and after the measurement date. With regard to mortality improvement, the actuary should do the following:
i. adjust mortality rates to reflect mortality improvement before the measurement date. For example, if the actuary starts with a published mortality table, the mortality rates may need to be adjusted to reflect mortality improvement from the effective date of the table to the measurement date. Such an adjustment is not necessary if, in the actuary’s professional judgment, the published mortality table reflects expected mortality rates as of the measurement date.
ii. include an assumption as to expected mortality improvement after the measurement date. This assumption should be disclosed in accordance with section 4.1.1, even if the actuary concludes that an assumption of zero future improvement is reasonable as described in section 3.3.5. Note that the existence of uncertainty about the occurrence or magnitude of future mortality improvement does not by itself mean that an assumption of zero future improvement is a reasonable assumption.
3.5.4 Disability and Disability Recovery
The actuary should consider factors such as the following:
a. the plan’s definition of disability (for example, whether the disabled person is eligible for Social Security benefits); and
b. the potential for recovery. For example, if the plan requires continued disability monitoring and if the plan’s definition of disability is very liberal, an assumption for rates of recovery may be appropriate. Alternatively, the probability of recovery may be reflected by assuming a lower incidence of disability than the actuary might otherwise assume.
3.5.5 Optional Form of Benefit Assumption
The actuary should consider factors such as the following:
a. the benefit forms and benefit commencement dates available under the plan being valued;
b. the historical or expected experience of elections under the plan being valued and similar plans; and
c. the degree to which particular benefit forms may be subsidized.
d. cost projections, including those made in conjunction with establishing or modifying the plan’s design; and
e. determinations of actuarial present values.
3.6 Other Demographic Assumptions
The actuary should follow the general selection process outlined in section 3.3 when selecting other assumptions relevant to the measurement. Such assumptions may include the following:
3.6.1 Administrative Expenses Charged to the Plan
The actuary should consider expenses such as investment advisory, investment management, or insurance advisory services, to the extent that the costs of these services are not reflected in the investment return assumption; premiums paid to the Pension Benefit Guaranty Corporation (PBGC); accounting and auditing services; actuarial services; plan administration services; legal services; and trustee services. Formats for this assumption may include a dollar amount, a specific percentage of assets, a specific (and explicitly disclosed) reduction in the investment return assumption, or a percentage of benefit obligation or normal cost.
3.6.2 Household Composition
If household composition affects the payment of benefits, the amount of benefits, or other demographic assumptions, the actuary should make assumptions for household composition and for the demographic characteristics of the household members in the measurement. For example, some plans provide annuity death benefits to surviving children under a stated age. In that case, an assumption as to the number and ages of the potential beneficiaries may be needed.
3.6.3 Marriage, Divorce, and Remarriage
The actuary should consider whether marriage, divorce, or remarriage affects the payment of benefits, the amount or type of benefits, or the continuation of benefit payments. If such an assumption is selected, it may also be necessary to make an assumption regarding beneficiary ages.
3.6.4 Open Group
Certain assumptions, such as the number and characteristics of new entrants, are applicable in open-group measurements.
3.6.5 Hours of Service
Assumptions for hours of service are generally plan- or industry-specific. Separate assumptions may also be needed for such purposes as benefit accrual and total employer plan contributions.
3.6.6 Transfers and Return to Employment
The assumptions for transfers or return to employment are generally plan- or industry-specific. Transfers and return to employment may be one-time events or may be continual if employees are required or permitted to move among groups that are covered by the same or different plans.
3.6.7 Missing or Incomplete Data
At times, the actuary may find that the data provided are incomplete due to missing elements such as birth dates or hire dates. Provided that the actuary has determined, in accordance with ASOP No. 23, Data Quality, that the overall data are of sufficient quality to complete the assignment, the actuary may need to make reasonable assumptions for the missing data elements. In making such assumptions, the actuary should consider the relevant data actually supplied. For example, it may be appropriate to assume a missing birth date is equal to the average birth date for other participants who have complete data and who have the same service credits as the participant whose date of birth is missing.
3.7 Consistency among Demographic Assumptions Selected by the Actuary for a Particular Measurement
With respect to any particular measurement, each demographic assumption selected by the actuary should be consistent with the other assumptions selected by the actuary unless the assumption, considered individually, is not material (see section 3.10.2). For example, if an employer’s business is in decline and the effect of that decline is reflected in the turnover assumption, it should also be reflected in the retirement assumption.
Assumptions selected by the actuary need not be consistent with prescribed assumptions, which are discussed in section 3.8.
3.8 Prescribed Assumptions
The actuary should use the guidance set forth in this standard whenever the actuary has an obligation to assess the reasonableness of a prescribed assumption. The actuary’s obligations with respect to prescribed assumptions are governed by ASOP Nos. 4, 6, and 41 as applicable, which address prescribed assumptions and methods.
3.9 Reviewing Assumptions
At each measurement date the actuary should consider whether the selected assumptions continue to be reasonable. The actuary is not required to do a complete assumption study at each measurement date. However, if the actuary determines that one or more of the previously selected assumptions are no longer reasonable, the actuary should follow the general process described in section 3.3 and select reasonable new assumptions as appropriate.
3.10 Other Considerations
The following issues may also be considered when selecting demographic assumptions:
3.10.1 Adverse Deviation or Plan Provisions That Are Difficult to Measure
Depending on the purpose of the measurement, the actuary may determine that it is appropriate to adjust the demographic assumptions to provide for adverse deviation or plan provisions that are difficult to measure, as discussed in ASOP No. 4. Any such adjustment made should be disclosed in accordance with section 4.1.1.
The actuary should consider the balance between refined assumptions and materiality. The actuary is not required to use a particular type of demographic assumption or to select a more refined demographic assumption when in the actuary’s professional judgment such use or selection is not expected to produce materially different results.
3.10.3 Cost of Using Refined Assumptions
The actuary should establish a balance between refined demographic assumptions and the cost of using refined assumptions. While all material demographic assumptions should be reflected, more refined assumptions are not required when they are not expected to produce materially different results. For example, actuaries working with small plans may prefer to emphasize the results of general research to comply with this standard. However, they are not precluded from using relevant plan-specific facts.
3.10.4 Combined Effect of Assumptions
The combined effect of all nonprescribed assumptions selected by the actuary (both demographic assumptions selected in accordance with this standard and economic assumptions selected in accordance with ASOP No. 27) should be reasonable. For example, the actuary may have decided not to make any assumption with regard to four different types of future events, each of which alone is immaterial. However, the effect of omitting assumptions for all four types of future events may be a material understatement or overstatement of the measurement results. In these circumstances, the assumptions should be revised.
3.10.5 Changes in Circumstances
The demographic assumptions selected should reflect the actuary’s knowledge as of the measurement date. However, the actuary may learn of an event occurring after the measurement date (for example, plan termination or death of the principal owner), that would have changed the actuary’s selection of a demographic assumption. If appropriate, the actuary may reflect this change as of the measurement date.
3.10.6 Views of Experts
Demographic data and analyses are available from a variety of sources, including representatives of the plan sponsor and administrator, demographers, economists, and other professionals. When the actuary is responsible for selecting or giving advice on selecting demographic assumptions within the scope of this standard, the actuary may incorporate the views of experts, but the selection or advice should reflect the actuary’s professional judgment.
Section 4. Communications and Disclosures
Any actuarial report prepared to communicate the results of work subject to this standard should contain the following disclosures with respect to demographic assumptions:
4.1.1 Assumptions Used
The actuary should describe each significant demographic assumption used in the measurement and whether the assumption represents an estimate of future experience, the actuary’s observation of the estimates inherent in market data, or a combination thereof. Sufficient detail should be shown to permit another qualified actuary to assess the level and pattern of each assumption (for example, by supplying the name of a published decrement table or by showing turnover rates at every fifth age for an unpublished age-based table).
The disclosure of the mortality assumption should contain sufficient detail to permit another qualified actuary to understand the provision made for future mortality improvement. If the actuary assumes zero mortality improvement after the measurement date, the actuary should state that no provision was made for future mortality improvement.
The description should also include a disclosure of any explicit adjustment made in accordance with section 3.10.1. for adverse deviation or for valuing plan provisions that are difficult to measure as discussed in ASOP No. 4.
4.1.2 Rationale for Assumptions
The actuary should disclose the information and analysis used in selecting each demographic assumption that has a significant effect on the measurement. The disclosure may be brief but should be pertinent to the plan’s circumstances. For example, the actuary may disclose any specific approaches used, sources of external advice, and how past experience and future expectations were considered. The disclosure may reference any actuarial experience report or study performed, including the date of the report or study. This section is not applicable to prescribed assumptions or methods set by another party or prescribed assumptions or methods set by law.
4.1.3 Changes in Assumptions
The actuary should disclose any changes in the demographic assumptions from those previously used for the same type of measurement. The general effects of the changes should be disclosed in words or by numerical data, as appropriate. For assumptions that were not prescribed, the actuary should include an explanation of the information and analysis that led to those changes. The disclosure may be brief but should be pertinent to the plan’s circumstances. The disclosure may reference any actuarial experience report or study performed, including the date of the report or study.
4.1.4 Changes in Circumstances
The actuary should refer to ASOP No. 41 for communication and disclosure requirements regarding changes in circumstances known to the actuary that occur after the measurement date and that would affect demographic assumptions selected as of the measurement date.
4.2 Disclosure about Prescribed Assumptions or Methods
The actuary’s communication should state the source of any prescribed assumptions or methods.
With respect to prescribed assumptions or methods set by another party, the actuary’s communication should identify the following, if applicable:
a. any prescribed assumption or method set by another party that significantly conflicts with what, in the actuary’s professional judgment, would be reasonable for the purpose of the measurement (section 3.8); or
b. any prescribed assumption or method set by another party that the actuary is unable to evaluate for reasonableness for the purpose of the measurement (section 3.8).
4.3 Additional Disclosures
The actuary should also include the following, as applicable, in an actuarial communication:
a. the disclosure in ASOP No. 41, section 4.3, if the actuary states reliance on other sources and thereby disclaims responsibility for any material assumption or method set by a party other than the actuary; and
b. the disclosure in ASOP No. 41, section 4.4, if, in the actuary’s professional judgment, the actuary has otherwise deviated materially from the guidance of this ASOP.
4.4 Confidential Information
Nothing in this standard is intended to require the actuary to disclose confidential information
Click here to read all comments.
PDF Version: Download Here
Last Revised: September 2013
Document Status: Past Exposure Draft