Results 1 to 8 of 8

Thread: Actuarial Audit Services

  1. #1
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112

    Actuarial Audit Services

    The Chicago Teachers' Pension Fund is evaluating whether we need to have our actuary valuation audited and would like to know if other sister organizations have engaged firms to provide the audit. Specifically, I am looking for:

    1) Any organization that hired an auditor to audit their valuation and experience study report?
    2) If so, how often is the audit performed?
    3) What value did the audit add?
    4) Any other relevant information.

    Thanks.

    Best Regards,
    Saron


    Saron Tegegne, MS
    Director of Finance
    Chicago Teachers' Pension Fund
    203 N. Lasalle, Suite 2600
    Chicago, IL 60601-1231
    tegegnes@ctpf.org

  2. #2
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    Saron;
    The Wyoming Retirement System recently completed an audit of our actuary. Our actuary has been Gabriel, Roeder and Smith (GRS); we hired Cavanaugh McDonald to audit GRS's work on our annual acutary valuation analysis for the GRS report of 1 January 2016. I've attached a copy of Cavanaugh's report, their major deliverable. Cavanaugh audited the valuation, not an experience study. This was a full scope, level one audit that replicated GRS's work.

    How often and whether to conduct an audit is a management/board decision. We relied on guidance from the Government Finance Officer's Association (GFOA) under their best practices "Actuarial Audits, May 2014". A link to the best practice is: http://www.gfoa.org/actuarial-audits

    The practice advises conducting an audit every 5 years or whenever plan fiduciaries sense a "red flag." In our situation, Wyoming had changed actuary firms often enough in the past to essentially meet 5 year audit requirements; the new firm would start by attempting to replicate the last report of the previous firm (a level one audit) to establish the baseline for their first report. We re-competed our actuarial business this past year and elected to continue to retain GRS after they had been with us for 5 years. Since this would not be a change in the actuary firm, an audit was indicated.

    The best practice outlines the reasons for an actuarial audit and the value that GFOA sees, to include:

    "An actuarial audit involves engaging the services of an outside actuary (reviewing actuary) to scrutinize the work of the plan’s consulting actuary.1 Actuarial audits are helpful for several reasons:

    1. They enhance the credibility of the actuarial valuation process by providing independent assurance that it was performed in accordance with actuarial standards of practice;
    2. They increase public trust in how the pension plan is being governed;
    3. They help plan fiduciaries to assess whether the pension plan is meeting its funding objectives;
    4. They can lead to the remediation of errors that might otherwise go undiscovered; and
    5. They can provide recommendations for improving the actuarial valuation process, including how information is presented in the actuarial valuation report and in other communications."

    Actuaries aren't cheap and neither are audits of actuaries. There are options other than a full-scope audit that can be less expensive (albeit less in depth), per the discussion in the GFOA best practice.

    Hope this is helpful.

    Regards,
    - Dave Swindell

  3. #3
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    I would suspect that almost every large plan conducts an actuarial audit on a regular basis. It’s a best practice according to GFOA (see their best practice on this topic at the following URL: http://www.gfoa.org/actuarial-audits)

    Best practice states that plans should do the audit at least every 5 years. In Arizona we do an audit every 5-7 years. In Minnesota we did audits every year, but at various levels. We would select one of the plans and conduct a level 1 audit (full replication) each year. We’d do level 2 or level 3 audits on the remaining plans. We’d rotate which plan would receive the level 1 audit each year.

    We have several actuarial audit RFPs posted on the P2F2 website, which might be helpful as well. The URL is: http://www.p2f2.org/professional_res...dit-RFPs.shtml

    This year in Arizona we’re doing an audit of the valuations and an audit of the experience studies, which were just issued in February. The audit should be complete by the end of April.

    Because we use fairly large actuarial firms to conduct our actuarial valuations and experience studies, we typically haven’t found any glaring errors, but that has been known to happen in other states. What’s been helpful has been to get the perspective of a different actuary who might calculate things just a little differently or have an idea about new techniques like layered amortization schedules. If nothing else, having another actuary review the work of our regular actuary has brought assurance to our Board that contribution rates are calculated correctly and we will remain solvent for another 30 years!

    Dave DeJonge | Deputy Administrator
    Public Safety Personnel Retirement System
    3010 East Camelback Road, Suite 200
    Phoenix, AZ 85016
    Phone: (602) 296-3740

  4. #4
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    Hello Saron,

    The auditing arm of the Florida Legislature is required to conduct a review of the Florida Retirement System (FRS) Pension Plan valuation whenever a valuation is performed. Since 1998, the valuation is performed annually. This entity contracts with an outside actuary to review the actuarial process and approach to make sure the valuation conforms to the requirements of Florida Law and the actuarial standards of practice. The reviewing actuary receives the same data files and information as the plan actuary for this process.

    With the advent of GASB 67 and 68, the FRS Pension Plan issues an audited financial valuation, schedules and net pension liability allocations for nearly 1,000 reporting employers. The reporting employers are responsible for any further allocation or breakdown within their financial reporting structure.

    The Florida Legislature requires funding 100 percent of the actuarially determined rates for the FRS. The employers, other stakeholders, and the public have an independent source to both validate the process and results but also raise any questions, discrepancies or recommendations without the plan having the appearance of being able to exert any influence over the review.

    Please let me know if you have any questions.

    Sincerely,


    Garry Green | Chief of Research and Education
    Retirement
    850-414-6349 (office) | 877-377-1737 (toll free)
    Florida Department of Management Services
    We Serve Those Who Serve Florida

  5. #5
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    See my response below.

    Phyllis L. Walker
    Chief Financial Officer

    State Universities Retirement System
    1901 Fox Drive
    PO Box 2710
    Champaign, IL 61825-2710
    (217) 378-7516

    Hope all is well. We are evaluating whether we need to have our actuary valuation audited and would like to know if other sister organizations have engaged firms to provide the audit. Specifically, I am looking for:

    1) Any organization that hired an auditor to audit their valuation and experience study report?
    Our June 2015 actuarial audit was a full scope audit that included an audit of the valuation and experience study report.
    2) If so, how often is the audit performed?
    SURS does not have a specific periodic timeframe for conducting a full scope audit or an audit that includes both.
    3) What value did the audit add?
    The value of any audit is to ensure that the valuation/experience study and other processes are performed accurately.

  6. #6
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    Here are our responses to your questions:

    1) Any organization that hired an auditor to audit their valuation and experience study report? We have just completed both and hired two different actuarial firms to participate.
    2) If so, how often is the audit performed? There is no specific requirement, but it has been about every 5 years.
    3) What value did the audit add? We have had the same consulting actuary for a number of years. Bringing in other experts to evaluate their work provides confirmation to our board that the work conforms with standards, is independently constructed and that appropriate and current risks are being mitigated.
    4) Any other relevant information. We have had audits of our experience study and program valuations. Results will be presented to our board at our April meeting.


    Robin Madsen, Chief Financial Officer
    Financial Services
    California State Teachers' Retirement System
    Rmadsen@CalSTRS.com | www.CalSTRS.com
    916-414-4385

  7. #7
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    Saron – Here are OPERS responses:

    1) Any organization that hired an auditor to audit their valuation and experience study report? The Ohio Retirement Study Council hires an independent actuary to audit OPERS’ actuarial valuations (DB and HC) every ten years. OPERS also voluntarily hires an independent actuary to audit the valuations every ten years.
    2) If so, how often is the audit performed? Since the timing of these audits are offset, an audit is performed every 5 years.
    3) What value did the audit add? It satisfies a statutory requirement and provides additional assurance that the annual valuations performed by OPERS actuary are reasonable and accurate.
    4) Any other relevant information.

    Jenny Starr, CPA
    Director of Finance
    Ohio Public Employees Retirement System
    277 East Town Street
    Columbus, Ohio 43215
    614-227-0059

  8. #8
    P2F2 Member
    Join Date
    Jan 2011
    Location
    Minnesota
    Posts
    112
    Here at DCRB, we hired an independent firm to conduct an actuarial audit in 2015. We attempt to do this approximately every 5 years.

    • They were tasked to perform an actuarial audit of the 2008 – 2013 annual actuarial valuation reports and the most recent actuarial experience study, which at that time was 2010;
    • They received and reconciled the data received from our primary actuary;
    • They compared the summary of our Plan provisions in the actuarial valuation report to our laws in the DC Code.
    • The audit did entail sample lives testing, and the sample lives were reviewed for appropriate application of benefit provisions and actuarial assumptions; however,
    • The actuarial audit did not entail a replication of the valuation result, and this kept the costs down.

    We felt the audit was helpful, and we were able to report to our Board of Trustees—and give them a level of comfort—that the assumptions, methods and procedures used in the actuarial valuations were technically sound and conform to Standards of Practice promulgated by the Actuarial Standards Board. And we could communicate to all of our stakeholders that the actuarial calculations found in the reports were reasonable and were in compliance.

    So, at the very least everyone felt they could rely on our actuarial firm that we have been using for years, and we didn’t need to worry about questions that were along the lines of, “well how do you know the actuary is right?” That was important for us, since the annual employer contribution is based on the findings in the actuarial valuation each year.

    Let me know if you have other questions, and I hope this is helpful.

    Regards,

    Anthony A. Shelborne

    Chief Financial Officer
    District of Columbia Retirement Board
    900 7th Street, NW, 2nd Floor
    Washington, DC 20001
    Phone: (202) 343-3296

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •