Your First OPEB Valuation Perils and Pitfalls 2006 NASACT Annual Conference

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Your First OPEB Valuation Perils and
Pitfalls2006 NASACT Annual Conference

• August 22, 2006
• Omaha Nebraska
• Presented by
• Tom Vicente, FSA
• Aon Consulting

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GASB Statements 43 45 Require an Actuarial
Valuation

• Many new challenges
• Different type of project
• Timing and project management are key

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Overview of Statement 45 Effects

• Positives
• Assess true labor cost of OPEB promise
• Uniform balance sheet recognition
• Better cost comparisons
• Negatives
• A lot of work to produce
• Different from prior cost approach
• Raises program profile

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Process

• Identify key constituencies
• Identify substantive plan
• Identify data needs and sources
• Identify assumptions and sources
• Educate

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Coordinate All Parties

• Internal
• Insurance group/department
• Controller/finance office
• Pension group
• Human Resources
• Political entities
• External
• Actuary
• Auditor
• Bond underwriters/SEC

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What Makes up the Valuation?

• Identify who is in YOUR plan
• Single employer versus multiple employer set-up
• Identify program provisions
• Eligibility
• Pre/post Medicare
• Cost sharing
• Identify cost groupings
• Medical plans
• Participant groups

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Data

• Types
• Demographic
• Medical cost
• Sources
• Pension systems
• Insurance group
• Payroll
• Issues
• Mismatches
• Integrity
• Filling in holes

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Set Assumptions and Methods

• Demographic
• Mirror pension?
• Turnover
• Mortality
• Retirement Ages
• Marriage assumptions
• Economic
• Return rates (funded/unfunded)
• Medical inflation

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Set Assumptions and Methods

• Amortization Approach
• Choice on how long
• Back load or front load
• Method
• Sensitivity

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Get Results

• Brace yourself
• Understand components in advance
• Understand likely magnitude in advance
• Reach out to key interest groups
• Get numbers last

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Make Policy

• Funding
• Financing by borrowing
• Design
• Offerings
• Revisit methods

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Discussion