Actuarial Liabilities

for

Pension Plans

Overview• What is an actuarial liability?• What impact do actuarial liabilities have on

Financial Reporting?• How are Actuarial Liabilities determined?• Recent Developments related to Actuarial

Liabilities.

• An actuary is a professional who analyzes the financial consequences of risk. They use statistics, mathematics and financial and social theory to make assessments of future financial obligations in the present.

• A liability is simply an action or event that will require financial resources in the future.

• An actuarial liability is a liability that is dependant on input from an enrolled actuary.

Significance of Actuarial Liabilities• Actuarial Liabilities account for nearly 40% of all

liabilities on the Balance Sheet of the United States Government.

• Pension Programs (accrued pension benefits) comprise over 50% of all Actuarial Liabilities.

Actuarial Liabilities include:

• Pension Programs (CSRS, FERS)

• Post-Retirement Health Benefits

• Life Insurance

• FECA Benefits

• Other Agency programs

How are Actuarial Liabilities Determined?• Actuaries perform annual studies (valuations) to determine

what financial impact current conditions (assumptions) will have on future benefit payments.

• Assumptions fall in to two categories: Economic (long term) and Demographic (short term).

• Experience Study – Demographic assumptions versus actual data for the year in review.

• An actuarial gain or loss is derived from these valuations and will impact the Statement of Net Cost of the Administrative Agency.

• Historically some of the most significant changes in amounts on the Statement of Net Cost for the consolidated Financial Report of the U.S. Government have been a

result of Actuarial assumption changes.

Statement of Federal Financial Accounting Standards 33

“Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses

from Changes in Assumptions and Selecting Discount Rates and Valuation Dates”

SFFAS #33 - Summary• Requires a more transparent display of actuarial

assumption changes.

• Provides a written standard for selecting valuation dates and discount rates.

• Applies only to agencies that administer pension plans – OPM is the administrative entity for CSRS and FERS.

• Does not apply to Actuarial FECA

• Effective beginning in Fiscal Year 2010.

• Kyle McLain - Accountant

• 304-480-8740

• Kyle.McLain@bpd.treas.gov