NASRA Paper - Overview of Amortization Policies
This paper is a great overview of various amortization policies.
Thursday, April 28, 2022
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Section: News Articles




NASRA issued a paper titled, "Overview of Public Pension Plan Amortization Policies" in April, 2022.  According to the brief, a pension plan’s amortization policy is a central feature of its funding policy, and the effectiveness of the amortization policy can have significant effects on a pension plan’s long-term cost. An amortization policy is defined as the rules and processes that determine the length of time and the structure of payments required to systematically eliminate a funding shortfall, known as the unfunded actuarial accrued liability (UAAL). The UAAL, or unfunded liability, is the difference between a plan’s actuarial value of assets and its liabilities, which are the accumulated value of benefits earned by plan participants.

Amortization policies are characterized by several factors described in the brief.  NASRA compiled data on 124 public pension plans.  The brief describes components of amortization policies and distinguishes plans on the basis of whether employer contribution rates are variable or fixed.  

For plans that have variable employer contributions, the paper describes open vs. closed amortization periods; layered vs. non-layered amortization; recommended amortization period lengths; amortization methods, and how to best amortize actuarial surpluses.  For plans that have fixed employer contributions, the paper discusses amortization periods and target funding periods.  Throughout the paper, recommendations by the Conference of Consulting Actuaries Public Plans Community are described.

This is a great source of information, especially for those who want to better understand the various components of amortization policies and want to see examples of what other public plans are doing.

To download the paper and/or the dataset used by the authors, go to https://www.nasra.org/content.asp?admin=Y&contentid=250.
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