ATRS board adopts new actuarial changes because retired Arkansas boomers living longer
by November 14, 2017 8:09 pm 931 views
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As pension funds across the U.S. face the sober reality that Baby Boomers are living longer and tapping into retirement funds a lot earlier, the Arkansas Teacher Retirement System (ATRS) met Monday (Nov. 13) to adopt proposed actuarial changes to the state’s largest pension fund that will kick in by fiscal year 2020.
According to social media posts by ATRS Executive Director George Hopkins and an update on the retirement fund’s website, the system’s board of directors met to consider proposed changes presented by the system’s actuaries and executive staff. Hopkins has the updated actuarial information because of a five- year experience study that will be presented to the ATRS Board in December.
“The information generated in the experience study is the basis for adoption of new actuarial assumptions. ATRS has been expecting and providing members with the anticipated actuarial changes that were presented and accepted today,” Hopkins said of Monday’s board meeting. “ATRS has also worked to provide the ability to absorb the costs of the assumption changes in a comprehensive manner through legislation and rules that have been put in place over the last several years.”
Since the legislative session, Hopkins said ATRS has been expecting and providing members with anticipated actuarial changes that were presented and accepted by the 15-person board of directors. ATRS has also worked to provide the ability to absorb the costs of the assumption changes in a comprehensive manner through legislation and rules that have been put in place over the last several years, said the former Malvern legislator.
According to Hopkin’s update, the first change was adoption of new mortality tables that have significantly longer life expectancies for ATRS members than the existing schedules. The second change was ATRS reduced its assumed rate of return from 8% where it has been since 1991 to 7.5% which was the ATRS assumed rate of return from 1986 to 1991. (Link here for a PDF document of the actuarial changes.)
In addition, the five-year experience study brought about many other minor actuarial assumption changes regarding disability rates, retirement rates, refund rates, and basic assumptions on inflation and member behavior.
Hopkins said ATRS executive staff is ready to maintain transparency and provide full information on the assumption and benefit changes to ATRS members, which now number nearly 130,000. He said the ATRS plans to hold “school hall meetings” across the state with school district, system employers and member groups to answer benefit questions and provide insight on the benefit the system provides.
“Most members will not see any change for well over a year and most of the changes will not have a material change to current benefits,” Hopkins said. “In addition, the changes implemented have hold harmless provisions and benchmarks to prevent a reduction in benefits being paid or a major change in benefit calculations, especially in the short term.”
ATRS is among dozens of large public pension funds across the U.S. that are recalculating their actuarial assumptions after the IRS sent out a notice on Oct. 5 that it will increase defined benefit plan contribution budgets and other pension fund mortality rates in the 2018 calendar year. The IRS issues mortality tables for the determination of minimum funding requirements for defined benefit pension plans. These mortality tables are also used to determine minimum present value requirements for lump-sum calculations.
Based on the IRS’ proposed changes to the mortality tables, the Society of Actuaries (SOA) released a study in April that said aggregate U.S. pension fund liabilities will increase 2.9% from $2.278 trillion to $2.343 trillion, and the estimated cost of current year benefit accruals will rise 1.6% to $50.4 billion from $49.6 billion. The estimated aggregate unfunded target would increase 35%, from $63 billion to $85 billion.
“Based on analysis of solely traditional pension plans, one might expect a slightly higher increase of 3%–5%, depending on the discount rate and age and gender mix of a plan population,” the SOA study states.
To maintain the current level of benefits, U.S. pension fund minimum required contributions for 2018 would need to increase 11% from $7.1 billion to $7.9 billion, the SOA study notes. If recently exhibited contribution patterns continue, 2018 contributions would rise about 4%, from $94 billion to $98 billion.
ATRS’ net pension liability is now up to 76.7%, or $2.8 billion, with total pension liabilities of $18.9 billion and net assets of $15.2 billion, according to the system’s fiscal 2016 report. That is down from a robust 82.2%, or $3.2 billion in fiscal 2015 when pension liabilities were $18.2 billion with net assets of $15 billion.
Net pension liability – which is the actuarial measure of the difference between the total pension liability and the assets set aside to pay current employees, retirees and beneficiaries – is important because many states and municipal governments have not fully funded their pensions.
According to Hopkins’s update to ATRS employees, Monday’s actuarial and benefit adjustments were required despite the system’s 16.1% investment return in the last fiscal year, which was the highest investment return in the U.S. for pension plans with over a billion dollars in assets under management.
“The recent benefit and contribution rate adjustments were made to absorb changes in actuarial assumptions and are not based on poor investment returns or weak operations,” Hopkins noted. “In fact, but for the strong ATRS investment returns, the benefit changes required by the new actuarial assumptions would have been much greater.”