Actuarial Standards Board Approves ASOP #4 Changes
This article shows the changes approved in ASOP #4
There were several changes made to ASOP #4, including the following:
To learn more about the changes, go to http://www.actuarialstandardsboard.org/asops/asop-no-4-measuring-pension-obligations-and-determining-pension-plan-costs-or-contributions/.
- All references to “plan obligations” were changed to “pension obligations” for consistency.
- All references to “actuarial assumptions” were changed to “assumptions” for consistency.
- Section 1.2, Scope, was expanded to clarify the application of the standard when the actuary selects an output smoothing method and when an assumption or method is not selected by the actuary.
- Section 2.8, Definition of Contribution Allocation Procedure, was clarified to state a contribution allocation procedure is one that determines one or more actuarially determined contributions for a plan.
- Section 2.12, Funding Valuation, was added in conjunction with added guidance in section 3.
- Section 2.13, Gain and Loss Analysis, was added in conjunction with added guidance in section 3.22.
- Section 2.18, Output Smoothing Method, was clarified to state that for the purposes of this standard, an asset valuation method is not an output smoothing method.
- Section 3.2, General Procedures, was revised to include specific references to sections 3.11, Low-Default-Risk Obligation Measure; 3.14, Amortization Methods; 3.16 Output Smoothing Method; 3.19, Implications of Contribution Allocation Procedure or Funding Policy; 3.20, Contribution Lag; 3.21, Reasonable Actuarially Determined Contribution; 3.22, Gain and Loss Analysis; 3.24, Assessment of Assumptions and Methods Not Selected by the Actuary; 3.25, Approximations and Estimates; and 3.26, Documentation. In addition, subsections of section 3 were reordered and renumbered.
- The guidance in section 3.3.2, Uncertainty or Risk, was revised to refer only to the relevant ASOPs.
- The title of section 3.8 was changed from “Actuarial Assumptions” to “Assumptions.” This section was expanded to provide additional guidance regarding selection of assumptions. In addition, exceptions to significant bias now include when alternative assumptions are used for the assessment of risk, in accordance with ASOP No. 51. Section 3.8 also was revised for clarity.
- Section 3.11, Low-Default-Risk Obligation Measure, was added to provide guidance regarding the calculation of this measure when the actuary is performing a funding valuation.
- Section 3.14, Amortization Methods, was added to provide guidance on the selection of amortization methods.
- Section 3.16, Output Smoothing Methods, was added to provide guidance on the selection of output smoothing methods.
- Section 3.17 (previously 3.14), Allocation Procedure, was expanded to provide additional guidance regarding the selection of a cost allocation procedure or contribution allocation procedure.
- Section 3.14.2 (now 3.19), Implications of Contribution Allocation Procedure or Funding Policy, was modified to eliminate exceptions to the requirement that the actuary should assess such implications whenever the actuary is performing a funding valuation.
- Section 3.20, Contribution Lag, was added to provide guidance on calculating an actuarially determined contribution, and the passage of time between the measurement date and the expected timing of actual contributions.
- Section 3.21, Reasonable Actuarially Determined Contribution, was added to provide further guidance on performing a funding valuation that does not include a prescribed assumption or method set by law.
- Section 3.22, Gain and Loss Analysis, was added to provide guidance regarding the performance of a gain and loss analysis when performing a funding valuation.
- Section 3.16 (now section 3.23), Volatility, was modified to direct an actuary analyzing potential economic and demographic volatility to refer to ASOP No. 51 for additional guidance.
- Section 3.26, Documentation, was added to provide guidance on documenting work within the scope of this ASOP.
- Section 4.1, Communication Requirements, was renamed “Required Disclosures in an Actuarial Report,” was expanded to provide additional guidance concerning disclosures, and was reordered to follow the order of the guidance in section 3.
To learn more about the changes, go to http://www.actuarialstandardsboard.org/asops/asop-no-4-measuring-pension-obligations-and-determining-pension-plan-costs-or-contributions/.