Retiree 9 Actuarial Method/assumptions

Question 1

Additional assumptions for retiree group benefits

Answer 1

1. Current plan costs and contribution
   
   1. 1 life insurance based on salary at retirement
   2. 2 health benefits based in health plan costs at time of retirement
   3. 3 health care costs for retirees under age 65 are 150 to 225% of active EEs
   4. 4 retiree less than 65 generally 40 to 80% of active EE costs
   5. 5 disabled EE from 150 to 400% of active employees
2. Health care trend rate
   
   2. 1 inflation, utilization, technology, plan design effects, cost shifting
   3. 2 aging and population changes are handled directly in the valuation process and should not be included in the trend
   4. 3 trend assumptions beginning at current levels and grading down to some real rate plus inflation for FAS106
   5. 4 Medicare benefit increase at a lower rate
   6. 5 deductible leveraging
   7. 6 under FAS 106, the trend disclosed is on gross plan costs, not net
3. Incurred versus paid claims: FAS106 requires incurred
4. Service mix
5. Medicare part B premium increase
6. Retiree contribution increase
7. Plan participation: claims per capita higher if less than 100% participation
8. Spouse and Dependent coverage and age
9. Effect of Plan changes on Assumptions

Question 2

Common problems in selection of actuarial assumptions

Answer 2

1. Under age 65 premiums
   
   1. 1 retirees less than 65 are 150% to 225% of costs for active EEs
2. Composite premiums
   
   2. 1 Assumes distributions of retirees and dependents will be same in future
3. Spouse/dependent premium
   
   3. 1 Spouse/dependent prem often classfied by the retirees age
4. Old premium structure
5. Missing data
6. Plan costs should be developed by age

Question 3

Assumptions for Life and Health Plans consistent with the pension valuation

Answer 3

1. Economic assumptions
   
   1. 1 inflation: does not include medical inflation
   2. 2 investment return
   3. 3 discount rate: use an after-tax instead of before-tax used in pension
   4. 4 salary increase
2. Demographic
   
   2. 1 termination/turnover
   3. 2 mortality in pension plan less critical than in retiree health
   4. 3 disability: medical costs for disabled > average active cost
   5. 4 retirement incidence: PV benefits increases the younger a person retires

Question 4

Actuarial methods for life and health plans

Answer 4

1. Pension methods can be adapted for retiree group benefits
2. Instead of benefit based on salary, service and age, benefit is based on health plan costs at retirement plus trend
3. Modified projected unit credit
4. 1 required method under FAS106
5. 2 use date of full eligibility, not expected retirement date
6. Modified entry age
   
   4. 1 used for welfare benefit fund calculations
   5. 2 EAN (Entry Age Normal) procedures the most conservative (i.e. Fastest) funding
7. Traditional unit credit the most liberal funding
8. GASB allows majority of methods