PERAC Memo #15 - 1997: Cost for Expenses

Cost for Expenses

Summary

This memo addresses the implementation of Chapter 306 of the Acts of 1996, which requires retirement system expenses to be paid from investment earnings, effective for valuations performed as of January 1, 1997 or later. Boards must ensure their actuarial valuations account for this change—either by adjusting the interest rate assumption to reflect net expected return or by adding a dollar amount to the appropriation—and must disclose the chosen method in the assumptions section of the valuation report. Boards using PERAC for valuations should expect to be contacted to provide an estimate of upcoming expenses, which will be added to Normal Cost unless an alternative (PERAC-approved) approach is requested.

Full Text

PERAC MEMO #15/1997 M E M O R A N D U M TO: All Retirement Boards FROM: Barbara J. Ware, Actuary RE: Cost for Expenses DATE: April 4, 1997 In accordance with Chapter 306 of the Acts of 1996, expenses will now be paid from investment earnings. Consequently, all valuations performed as of January 1, 1997 or later must consider this fact. Two ways in which this may be accomplished are: 1) setting the interest rate assumption to match the net expected return, or 2) adding a dollar amount to the appropriation, so that the system is in the same position as it would have been if the expenses had been paid separately. If you are having a valuation done by a consulting actuary, you should discuss this issue with him or her. Whichever method of recognition is used should be disclosed in the assumptions section of the valuation report. For the PERAC valuations, we will be contacting you to get an estimate of the expenses for the upcoming year. The amount which you give us will be added to the Normal Cost, unless you specifically ask us to use a different approach (which, of course, must be approved). / bjw cc: Robert F. Stalnaker, Executive Director Consulting Actuaries