Mandated Assumptions in an RFP
We encourage California cities, counties, and districts that are in the process of putting out RFPs for GASB 45, to permit responding actuarial firms to begin with a clean slate as far as selection of assumptions and actuarial cost method.
Coming to an actuary and saying first thing: “As a condition of your firm being awarded this assignment, you must agree to using a pre-determined set of actuarial assumptions and a pre-determined actuarial cost method” is almost precisely analogous to walking into a doctor’s office, and before even saying “God, it’s cold in here!”, demanding that the doctor prescribe you a particular form of pain reliever you’ve decided would be good for you, and walking out the door if the doctor refuses.
In other words, you’re taking all the value of the actuary’s professional experience and throwing it out the window, and supplanting it with someone else’s. And in the present situation, it might even be the professional experience of someone less qualified to be making the diagnosis than the actuary receiving your RFP.
Actuaries are required to pass a series of 10 actuarial exams that frequently take 7 or more years to complete. Actuaries are held to the highest ethical standards. If we have a conflict of interest, even an apparent conflict of interest, we’re required by the code of our profession to disclose it up front.
That’s why when you get advice from an actuary, you won’t have to wonder whether there’s a financial axe to grind that perhaps you’re unaware of. Unfortunately, this statement does not extend to organizations that serve as fronts for actuaries, but do not permit you to deal directly with the actuary.
In summary:
(1) Make sure you know who you’re dealing with
(2) Make sure you know how they are compensated
(3) Make sure you give them a chance to show their stuff.
LF