Public Plan Solvency & Funding
GFOA Meeting
October 6, 2011
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
Typically Solvency Measured By
Assets ÷ Liabilities
But…
Which Assets and Which
Liabilities?
Various Asset Measurements
Available
 Cost
 Market
 Actuarial
Cost Value of Assets
 Generally, not currently used
 Used under prior accounting rules
Market Value of Assets
 Fair Value of Investments
 Special Cases:
 Hedge Funds
 Private Equity
 Real Estate
 Timber
Actuarial Value of Assets
 Market Value
 Smoothed Value
 Objective
 Methodologies
 Periods
 Corridors
Assets: GASB 25 / 27
 Currently
 Actuarial Value of Assets
 Proposed
 Market Value
Various Liability Measurements
Available
 Funding Method Liability
 Based on whatever actuarial funding
method is used
 Rules Based Liability
 Based on a prescribed method. Measured
at the funding interest rate or a stipulated
interest rate.
Liabilities: GASB 25 / 27
 Currently
 Funding Liability
 Proposed
 Stipulated Method Liability
Liability Interest Rate
GASB 25 / 27
 Currently
 Funding Interest Rate
 Proposed
 Blended rate based on current fixed
income rate and funding interest rate
Funding Basics
Present Value of Future Benefits
Funding Methods
 Unit Credit
 Projected Unit Credit
 Entry Age Normal
 Frozen Entry / Attained Age Normal
 Aggregate
Normal Cost
 Unit Credit

Present value of benefits earned during the
year
 Projected Unit Credit

Present value of benefits (with projection for
salary increase) earned during the year
 Entry Age Normal

Designed as level percent of pay over
working career
Unfunded Accrued Liability
(Unit Credit / Projected Unit Credit /
Entry Age Normal)
UAL =
+
+
+
–
Accumulated Normal Costs
Accumulated Losses (Gains)
Accumulated Changes in Assumptions
Accumulated Benefit Increases
Assets
Normal Costs
 Frozen Attained / Entry Age Normal
 Allocated Share of Present Value of Future
Normal Costs Derived from the UAL
 Aggregate Funding
 Allocated Share of Present Value of Future
Normal Cost Derived from a Zero UAL
Unfunded Accrued Liability
 Frozen Attained / Entry Age Normal
 Set by reference to Unit Credit / Entry Age
Normal Method
 Aggregate
 Set = 0
Gains & Losses
 Sources:
 Assets & Liabilities
 Allocated to:
 Unfunded Accrued Liability for Unit
Credit, Projected Unit Credit & Entry Age
Normal
 Normal Cost for Frozen Attained / Entry
Age Normal & Aggregate Method
Funding Sources





Employee Contributions
Direct Employer Contributions
Ad Valorem Taxes
Revenue Sharing Funds
Insurance Premium Taxes
Funding Volatility
 Different systems have different
contribution volatility based on different
plan provisions and different demography
of the group
Funding Leverage
 Leverage of employee contributions will
depend on what percentage of the cost of
the plan is paid for by direct employer
contributions
Back to Solvency…
 Funded Ratio
 Single measurement can be misleading
 Trend is more important than single
measurement
 Change in accounting rules will change
ratios
 Even with standardized measure,
comparatives between plans are not valid
since assumptions will differ