BEST PRACTICES: The Role of the Actuarial Valuation Report in Plan Funding Flashcards
GFOA recommends that governments carefully review and understand their actuarial valuation report and use the information it contains to make policy decisions.
What is the primary purpose of an actuarial valuation report?
To determine the actuarially determined contributions and measure the plan’s funding progress, providing crucial information for funding pension benefits sustainably.
What are key components to review in an actuarial valuation report?
Actuarially Determined Contribution, Liabilities, Assets, Funded Ratio, Actuarial Assumptions, Historical Information, and Actuarial Comments.
Why is it important to pay the full amount of the actuarially determined contribution each year?
To ensure the plan accumulates sufficient resources over time to pay benefits, supporting the plan’s sustainability.
What does the funded ratio indicate in an actuarial valuation?
The extent to which accumulated plan assets are sufficient to pay future benefits, aiming for a funded ratio that approaches 100%.
How often should experience studies be conducted to validate actuarial methods and assumptions?
No less frequently than every five years, to align assumptions with the plan’s demographic and economic experience.
What role does the finance officer play regarding the actuarial valuation report?
To communicate the contents of the actuarial report to decision-makers and the general public in a clear and understandable manner.
What actions should be taken based on the information in an actuarial report?
Making required contributions, assessing funding progress, mitigating risks, ensuring reliable data, and validating methods and assumptions through experience studies.
How can risks related to funding benefits be mitigated?
By identifying risks from the actuarial valuation and taking appropriate actions, such as adjusting asset allocations to lower volatility.
