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LAPERS Presentation

LAPERS Presentation. September 15, 2013. Gary S. Curran , FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225) 769-4825. Abbreviations. NC = Normal Cost AL = Accrued Liability UAL = Unfunded Accrued Liability.

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LAPERS Presentation

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  1. LAPERS Presentation September 15, 2013 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225) 769-4825

  2. Abbreviations • NC = Normal Cost • AL = Accrued Liability • UAL = Unfunded Accrued Liability

  3. Funding Methods General Principles

  4. Benefits are funded with: • Money the plan has now • Money the plan will collect in the future

  5. Money that will be collected in the future can either be in the form of future normal costs or payments on the unfunded accrued liability

  6. This year’s allocated share of future normal costs is in fact the “Normal Cost” as given in the valuation • This year’s allocated share of future UAL payments is in fact the “Amortization Payment” as given in the valuation

  7. Funding Methods • “No Free Lunch” • Pay less now / Pay more later • Pay more now / Pay less later

  8. Funding Methods • 2 cost elements • Normal Cost • Payments on Unfunded Accrued Liability

  9. Funding Methods • 2 types of methods • Use assets to determine UAL • Use assets to determine Future Normal Costs

  10. Funding Methods • Type I : Use assets to determine UAL • Projected Unit Credit • Entry Age Normal

  11. Funding Methods • Projected Unit Credit • NC is based on “Credited Projected Benefits” for the year • AL is the accumulated “Credited Projected Benefits” • UAL = Accrued Liability – Assets

  12. Funding Methods • Entry Age Normal • NC is based on payments as level percentage of pay • AL is based on accumulated Normal Cost • UAL = Accrued Liability – Assets

  13. Funding Methods • Type II : Use assets to determine Future Normal Costs • Aggregate • Frozen Entry / Attained Age Normal

  14. Funding Methods • Aggregate • NC is based on allocated share of the difference between Present Value of Benefits and the assets • AL is set equal to assets • UAL = 0

  15. Funding Methods • Frozen Attained / Entry Age Normal • NC is based on allocated share of the difference between Present Value of Benefits and sum of assets & UAL • AL is set equal to UAL + Assets • UAL is the unamortized portion of a prior UAL determined under Projected Unit Credit or Entry Age Normal

  16. Funding Methods • All funding methods, when properly applied, will accumulate sufficient assets over the working career of members to provide for retirees benefits • The ultimate cost of a plan is independent of the funding method selected and depends on benefit levels and investment earnings • Only to the extent that some methods accumulate assets more rapidly than others and these produce greater investment earnings do different cost methods affect total contributions • Cost methods which only fund the “earned” benefit each year (i.e. Projected United Credit) will see costs rise on an individual basis as members get nearer to retirement

  17. Funding Methods • The objective of the Entry Age Normal Cost Method is to produce normal costs which are level as a percentage of payroll • All gains and losses under Entry Age Normal and Projected Unit Credit will produce additional Unfunded Liability credits or debits • Gains or losses under the Aggregate or Frozen methods will not affect the unfunded accrued liability but will increase or decrease normal costs • Cost methods with lower current costs will have higher future costs

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