Pension Basics

104 Pages·2014·1.07 MB·English

Arizona PSPRS
Pension Task Force
“Actuary 101”
Mark Buis, FSA, EA, MAAA
Jim Anderson, FSA EA, MAAA
September 12, 2014
Copyright © 2014 GRS – All rights reserved.
Table of Contents
 Actuary 101 (50 minutes)
►Retirement Plans
►Actuarial Mathematics
►Actuarial Assumptions
 PSPRS Specifics (50 minutes)
► Understanding PSPRS Valuations
► Understanding PSPRS Experience Studies
 PSPRS Recent History and Analysis (50 minutes)
► Timeline of Events
► Prior studies and conclusions

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Actuary 101
Copyright © 2014 GRS – All rights reserved.
R P
ETIREMENT LANS
4
Types of Retirement Plans

Defined Benefit (DB) Plans

Defined Contribution (DC) Plans

Hybrid Plans
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Pure Defined Benefit Plans
Benefit determined by a formula
Usually involves Years of Credited Service
Final Average Salary (FAS)
A multiplier such as 2.0%
2.0% x 30 years x $50,000 = $30,000 per
year
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Pure Defined Contribution Plans
A stated percent of earnings is put into an
account each year

Employee can usually direct the
investment of that account

Balance in the account is available for
distribution at retirement (or earlier)

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Hybrid Plans
 Pension plans that have elements of defined
benefit plans and defined contribution plans
 Usually involve the benefit for the participant
being awarded as a lump sum instead of as an
annuity
 These types of plans are regulated as defined
benefit plans
 Examples of hybrid pension plans include cash
balance and pension equity plans
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Defined Benefit Plan
Risk Characteristics
Investment Risk (Poor Performance)
Mortality Risk (Long Lives)
Inflation Risk (Pay Increases, CPI COLA)

Employer bears the risks
Benefits are predictable (defined)
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Defined Contribution Plan
Risk Characteristics
Investment Risk (Poor Performance)
Mortality Risk (Long Lives)
Inflation Risk (No COLA)

Employee bears the risks
Benefits are not predictable
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