Jump to content

Recommended Posts

Posted

Client's attorney is proactively (no problems or lawsuits anticipated, just want to have an objective look) hiring actuarial firm to do actuarial equivalence study respecting client's frozen defined benefit pension plan. Client has hired a particular actuarial firm for consulting on lump sum window, and other matters through the years. The actuarial firm does not consider itself to be a fiduciary respecting the plan, but in terms of best practices, does anyone have thoughts on whether or not another actuarial firm that has never worked before with the client's plan should be selected to do the study or if it doesn't matter?

Posted

One might think the existing plan actuary would be in the best position to do such a study, having the data and first hand knowledge of the plan's experience in terms of mortality and other relevant factors. However, might that actuary also be conflicted and predisposed to endorse the status quo? If the actuary was originally involved in helping the sponsor determine the AE assumptions or never commented on their potential lack of appropriateness over a protracted period or simply doesn't want to deal with the legal requirements and system changes necessary to implement a change, that is a possibility. Might an outside actuary be predisposed to find issues that discredit the incumbent? I would hope not, but in either case is there total independence and unbiased determination?

I don't know if there is a right answer or a best practice, I only know there are lots of questions, and it's not only mortality but mortality and interest. Depending on the size of the plan and the desired comfort level, as well as cost concerns, maybe the best alternative is for the incumbent to run the study and, if the actuary says everything is just fine as is (and as is has been in place for 20-30 years or more) without further comments, clarifications or suggestions, then engage an outside actuary for a second opinion.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...

Important Information

Terms of Use