Actuarial Notes

Risk Management and Public Plan Retirement Systems

By Public Plans Practices Task Force of the American Academy of Actuaries · American Academy of Actuaries · 2010

Study guides: Exam RET-101, Exam RET-201

A report to the Board of Directors of the American Academy of Actuaries from its Public Plans Practices Task Force, created to examine a broad range of actuarial issues and practices related to public-sector retirement systems. It discusses the need for the actuary to function as a risk advisor in the public plan sector and recommends ways actuaries can influence the operation of public plans so as to strengthen their risk management, through a risk evaluation, management and reporting framework.

On the syllabus

  • Exam RET-201 — Risk Management and Public Plan Retirement Systems, AAA (Appendices only; pp. 1-33 background); outcome 5b.
  • Exam RET-101 — RET101-111-25; Appendices B and C only (the remainder is background); Outcomes 2b. The SOA course strategy guide says the appendices discuss the structure and governance of public retirement plans in the U.S., some of it relevant to other countries; RET101-111-25; outcome 3a; Appendices A-C only (the remainder is background).

Introduction and Executive Summary

  • The Task Force
  • The goal of the task force
  • Use of a professional risk framework
  • Executive Summary for Public Pension Plans – Understanding the Risks

Public Plans, Actuaries, and Risk Management

The Control Cycle and Risk Management

  • Multiple Principals and Moral Hazard
  • The Framework
  • Identifying Participants/Stakeholders
  • Defining the Objectives
  • Establishing the Risk Budget
  • Evaluating Risk Mitigation Alternatives
  • Maintaining an Effective Feedback Process

Conclusions & Recommendations

  • Constructive Structural Incentives
  • Distinguishing Prudent Risks
  • Planning For Future Stresses
  • Recommendations

Appendix A – Background

  • The Nature of the Plan Sponsors
  • The Nature of the Membership
  • Plan Design
  • Plan Governance
  • Funding

Appendix B – Discussion of Stakeholders

  • Society/Taxpayers
  • Public Employees (Plan Members, Beneficiaries and Future Employees)
  • Unions
  • Public Sector Employers
  • Retirement System Governing Body
  • Legislature
  • Other agents

Appendix C – Risk Exposures of Public Pension Plans

  • General Benefits from Pooling
  • Risk Exposures of the Plan
  • Risks Inherent within the Design
  • Management Risk of Major Stakeholder Actions
  • Governance & Operational Risk

Appendix D –Retiree Health Benefits

Sources