ASOP 4 Toolkit: Measuring Pension Obligations and LDROM
Several pension organizations, including the National Conference on Public Employee Retirement Systems (NCPERS), the National Association of State Retirement Administrators (NASRA), the National Council on Teacher Retirement (NCTR) and the National Institute on Retirement Security (NIRS) developed and issued the ASOP 4 Toolkit: Measuring Pension Obligations and LDROM in March, 2023. The Toolkit was developed to "help pension funds communicate the new requirements of ASOP 4, avoid the misunderstanding and misuse of the new disclosure, and communicate the benefits of a well-diversified investment portfolio."
The Actuarial Standards Board adopted revisions to ASOP 4 in December of 2021. The revisions are effective for any actuarial reports that have a measurement date on or after February 15, 2023. One of the revisions includes a new Low-Default-Risk Obligation Measure (LDROM) calculation and disclosure. The new calculation assumes a pension plan is invested solely in high quality bonds, so provides information on what the pension liability measurement would be if the plan were to adopt an all-bond investment strategy. The LDROM is calculated using a discount rate that will typically be lower than a plan's expected return on the plan's diversified investment portfolio. As a result, the LDROM is really an illustration of expected taxpayer savings generated when a plan invests in asset classes with higher expected returns than high quality bonds.
The toolkit includes a fact sheet on the LDROM, sample LDROM language for valuation reports that plans may want to include in their financial reports if they include the LDROM in their actuarial section, and frequently asked questions about the LDROM.
The ASOP 4 Toolkit is available on the NCPERS website.
The Actuarial Standards Board adopted revisions to ASOP 4 in December of 2021. The revisions are effective for any actuarial reports that have a measurement date on or after February 15, 2023. One of the revisions includes a new Low-Default-Risk Obligation Measure (LDROM) calculation and disclosure. The new calculation assumes a pension plan is invested solely in high quality bonds, so provides information on what the pension liability measurement would be if the plan were to adopt an all-bond investment strategy. The LDROM is calculated using a discount rate that will typically be lower than a plan's expected return on the plan's diversified investment portfolio. As a result, the LDROM is really an illustration of expected taxpayer savings generated when a plan invests in asset classes with higher expected returns than high quality bonds.
The toolkit includes a fact sheet on the LDROM, sample LDROM language for valuation reports that plans may want to include in their financial reports if they include the LDROM in their actuarial section, and frequently asked questions about the LDROM.
The ASOP 4 Toolkit is available on the NCPERS website.