GASB 45 - Chapter 6: The valuation - "Number-crunching"
You can actually get through the whole project without knowing or worrying about exactly what the actuary is doing with all that data, or how he or she prepares the report. But it might help to have an overview of the main aspects of the valuation process, to see that there's no big mystery in what we do.
Reviewing the data
The actuary reviews, processes, and ask questions about the data. You've provided most or all of the data the actuary asked for and now he sorts through it and sees if he has everything needed to do the valuation. At least 90% of the time, some questions will come up and there will be one or two follow-up requests from the actuary that you will need to address. The amount of time you'll need to spend answering these requests is hopefully far less than what you spent with the initial data request.
Choosing actuarial assumptions
The actuary and client jointly select a proposed set of actuarial assumptions to be used in the valuation. DF&A makes a practice of discussing the proposed assumptions with our clients at this stage in the project; not all actuaries will do this. While the actuary must have the final say as to the reasonableness of any assumption, we welcome the client's input in the selection process, and it's important to remember that the earlier a client questions an assumption, the less work it is for the actuary to make the required changes to the valuation.
Writing and debugging the valuation program
The actuary writes a valuation program or tailors an existing computer program to the specifics of your plan, data and actuarial assumptions. This program creates numerical output that is summarized into financial disclosures required by GASB 45 - items such as the actuarial liability, the normal cost, and the annual required contributions of the employer (the ARC).
Preparing a draft report
The actuary prepares a draft of the valuation report, which will, once modified and approved by all parties, become the final report. The draft report sets out financial results, recommendations, a summary of the data used in the valuation, a list of actuarial assumptions and cost method, and an explanation of benefit plan provisions as understood by the actuary. The final report will contain all those items plus a signature page executed by the actuary (and consultant, if applicable - but always the actuary.)
A few words of explanation
Note: We have used the terms "actuary" and "consultant" interchangeably in this series, but there really may be a distinction. In larger firms, it's typical to have younger, "green eye-shade" types doing the number crunching and taking the blame when things go wrong, while the typically older, more seasoned consultants handle the client interface and take most of the credit when things go well. In fact, "the actuary" and "the consultant" may be the same person. If that's the case, when we refer to "the actuary" here we mean the consulting actuary with his actuarial hat on at the moment. We also appreciate that the consultant and/or actuary may be a "she", not a "he", but to make things a bit less wordy, we sometimes use the male pronoun to mean both.
