FRAMEWORK FOR CONSIDERING
CHANGES IN ACTUARIAL
FUNDING METHODOLOGIES
Presentation to the FCERA Board of Retirement and
the Fresno County Board of Supervisors
April 30, 2009 Concurrent Meetings
Jeffrey R. Rieger
FUNDAMENTAL FIDUCIARY DUTIES
 Retirement Board Independence
 Exclusive Benefit Rule
 Duty of Loyalty – best interests of all
members and beneficiaries, today
and tomorrow
 Duty of Prudence – to provide sound
actuarial funding of promised
benefits
Measure of prudence: “under the
circumstances then prevailing”
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A WORD ABOUT “CONFLICTS”
 Interests are constitutionally “baked in,” but retirement
board must act for the system as a whole and not for
appointing or electing “constituencies”
 It is not a crime to perform constitutional duties
 So long as decisions
are within the scope of board’s duty to administer the system,
do not violate fiduciary duties,
do not involve a quid pro quo promise in exchange for a vote,
do not affect board member differently from similarly situated
individuals who are a significant segment of the membership,
 do not affect a contract between the system and a member’s
employing department (or with the member personally!) and
 all ‘interests” are disclosed on the record,
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then there is little risk of a disqualifying conflict of
interest
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RECENT EXTRAORDINARY
ECONOMIC EVENTS
 Impact on FCERA
Investment earnings
Assumed rate of return
Actuarial Smoothing
Gap between Actuarial and Market
Value of Assets
 Funded ratio – current and projected
 Contribution rates
 Retirement assumptions
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 No impact on retiree payroll
RECENT EXTRAORDINARY
ECONOMIC EVENTS
 Impact on the County and districts
 Revenues
 Workforce
 Retirement assumptions
 Employer contributions
 Impact on members
 Job security
 Wage security
 Retirement assumptions
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FACTORS THAT RETIREMENT
BOARD MAY CONSIDER
 Actuarially sound methodologies
 FCERA’s cash flow requirements and
the ability to pay benefits timely
 FCERA’s long-term funding
obligations
 Employers’ ability to meet future
obligations
 Volatility of employer retirement
contribution rates
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FACTORS THAT RETIREMENT
BOARD MAY CONSIDER
 Substantial employer hardship
 Decline in revenue sources
 Operational deficits
 Reductions in force
 County, district ability to make timely
contributions
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CHECKLIST FOR
PRUDENT DECISION MAKING
 Conduct open and public proceedings
 Identify, disclose and act on any
conflicts of interest
 Provide notice to and obtain input
from all members and member
organizations
 Provide notice to and obtain input
from all employers
 Avoid “negotiating” with employers
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CHECKLIST FOR
PRUDENT DECISION MAKING
 Conduct independent and full due
diligence
 Obtain detailed actuarial “if/then”
modeling
 Obtain actuary’s recommendations
and assurance of compliance with
standards of practice
 Determine if any material impact on
members’ benefit security
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CHECKLIST FOR
PRUDENT DECISION MAKING
 Acknowledge likely impact of
“subsequent events” that have
occurred after valuation date
 Consider existing policies and identify
reasons to keep or change them
 Understand how this year’s decisions
will impact system in future years
 Establish complete record of
deliberations, actions
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