HomeMy WebLinkAboutDocumentation_Pension General_Tab 04_08/04/2008Laur, Betty
From: McWilliams, Lori
~ent: Thursday, July 24, 2008 9:28 AM
o: Laur, Betty
Subject: FW: Proposed Pension Changes
Attachments: Proposed Rule Changes with Memo 7-17-08.doc
Please place on both agendas.
From: Duane.Howison@gabrielroeder.com [mailto:Duane.Howison@gabrielroeder.com]
Sent: Tuesday, July 22, 2008 12:42 PM
To: McWill'lams, Lori; karena@hpjlaw.com
Subject: Proposed Pension Changes
As you may be aware, there was recently a meeting in Tallahassee related to proposed pension changes. Attached is a
memo related to the topics covered.
Let us know if you have further questions.
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uane Howison, FSA, EA
Gabriel, Roeder, Smith and Company
One East Broward Blvd.
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Telephone: 954-527-1616
duane.howison(cilgabrielroeder.corn
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MEMO
To: GRS Florida Clients
From: GRS
Date: July 17, 2008
Re: Proposed Changes to State Administrative Rules Pertaining to Funding and
Disclosure
On July 14tH, the Department of Management Services held a workshop to discuss
proposed changes to Section 60T of the Florida Administrative Code. The proposed
changes were published in "Administrative Weekly" on or about June 24tH
The five GRS senior actuaries who are responsible for our 120 public plans in Florida
studied the proposed changes during the week ending July 1 ltn. Jim Rizzo, Jeff Amrose
and Steve Palmquist attended the workshop in Tallahassee and presented the attached
comments. In attendance were other actuaries, trustees, union representatives, attorneys,
asset consultants and city management representatives. Approximately 20 people gave
prepared statements.
The Department is planning another workshop for September, possibly in conjunction
with Trish Shoemaker's conference in Kissimmee.
Please contact us if you have any questions or comments pertaining to our attachment or
the proposed rules.
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Comments from Actuaries at Gabriel Roeder Smith & Company (GRS)
Regarding Proposed Rule Changes
For Florida Public Employee Retirement Plans
July 11, 2008
Overview
The undersigned provide actuarial and consulting services to over 120 public employee retirement systems in
Florida, and this statement contains our unanimous position. Each state and every plan is different; this position
is limited to actuarial reports generated for public plans in Florida.
The objective of Chapter ] l2 and the related Administrative Rules is to maximize the protection of public
employee retirement benefits.
Apparently the Department feels the need to change the Rules. The stated objective has not changed. So the
questions are (i) whether the proposed changes bring the Rules closer to accomplishing the objective, and (ii)
whether there is a better way to reach the stated objective.
Do the proposed changes bring the Rules closer to accomplishing the objective?
The proposed Rules would add a tremendous amount of work to the actuarial valuation process and a lot of
required information to the valuation report. The requirements go way beyond what the actuarial profession has
deemed necessary as described in the Actuarial Standards of Practice or what another actuary would need to
assess the financial status of the plan. In fact GRS provides actuarial services for public employee plans in about
40 states and none requires this amount of information.
• Some of the information goes way beyond what is normally part of the valuation process -such as
developing complete termination experience by decrement by age group.
• Some of the information has nothing to do with the plan being valued -such as the parameters describing
the members covered by Social Security.
• Some of the requirements are not well defined and contradict certain Actuarial Standards of Practice -
such as "actuarial assumptions that consistently generate experience gains or losses are prima facie
indications of unreasonable actuarial assumptions."
• Some of the requirements are inappropriate for ongoing public plans.- such as use of the PBGC mortality
table.
• Some of the requirements are not even information, but are purely hypothetical -such as providing a
historical exhibit by plan year disclosing the plan-sponsor amount that would have been paid if the
contribution was based on the contribution rate rather than a dollar amount.
• Some of the information is not actuarial but purely administrative -such as listing all the investment
managers with addresses and phone numbers.
• Some of the rules change existing law -such as stating that the plan sponsors are responsible for the
actuarial assumptions and cost methods rather than the Boards of Trustees.
• Some of the rules seem to contradict GASB standards -such as providing a funding holiday based on a
uniquely defined full funding limitation.
At best adding such information will make it that much more difficult for interested parties to wade through the
actuarial valuation report to determine the financial status of the plan. At worst it will add significant cost and
delay to the actuarial valuation process without adding any value to the beneficiaries of the trust.
Delays in producing valuation reports may in turn cause budgets and CAFR's to be delayed. It is very
conceivable that plans which have had annual actuarial valuations will start doing them every two or three years,
which would delay recognition of fundamental- changes in the system. It is also entirely possible that there will
be more plan terminations and more sponsors electing FRS coverage as a result of these new rules.
What is not clear is how these new requirements maximize the protection of public employee retirement benefits,
which is the stated objective:
Is there a better way to reach the stated objective?
Starting at the beginning, since these changes are in part driven by information that needs to be reported to
another level, someone should take a hard look at what is actually necessary or useful to those receiving the
information. Evaluation of why the state actuary is being required to report non actuarial information should be
undertaken.
To the extent new information is needed or wanted, there should be a realistic assessment of the cost involved in
getting that new information so there can be acost-benefit analysis. Some of this information will be very costly
to produce; and even something that is not so difficult will add cost to the preparation of every actuarial report
every year.
It should be noted that the Division's review of actuarial reports is already behind schedule. Adding more
disclosure information will cause further delays.
Finally, someone should take a look at the process used by OPPAGA to review FRS. They do not require this
much information and yet they are comfortable with their review process. FRS does not report most of this
information in their valuation reports. How can we justify burdening smaller local plans by complying with these
substantial new requirements?
Recommendation
We recommend that a task force of interested parties be established to partner with the staff of the Department of
Management Services. This Task Force would be charged with the following:
(l) Determining what issues or problems the Department is trying to address.
(2) Providing recommendations on how best to deal with those problems.
(3) Developing other ideas for enhancing and securing the financial soundness of Florida's public retirement
systems.
Brad Armstrong
Theora Braccialarghe
Steve Palmquist
Jim Rizzo
Larry Wilson
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