Industry News

The 2024 Annual Edition of the Florida Public Pension Trustees Association (FPPTA) newsletter, The Voice, features an article written by Pete Strong and Dina Lerner, Consulting Actuaries at Gabriel, Roeder, Smith & Company (GRS), titled “Controlling Volatility of Required Employer Contributions with Synchronization.” 

According to the article, most actuarial valuations for governmental pension plans include methods to help with volatility control for year-to-year stability of employer contribution requirements. The methods include: 1) using an asset smoothing method; 2) using the Entry Age Normal funding method; and 3) amortizing the Unfunded Actuarial Liability (UAL) over a number of years.

“Layered amortization” is used by many U.S. public pension plans to establish new unfunded liability amortization bases each year based on experience gains or losses, assumption changes and plan amendments. When plans use layered amortization, positive and negative bases are usually fully amortized in different years, and sometimes in consecutive years, leading to unanticipated volatility. This can be addressed using “synchronization,” which involves maintaining all originally established amortization bases, but adjusting the number of years remaining so that the bases which are expected to cause volatility expire at the same time.

The authors suggest that the decision to synchronize should be discussed with the plan’s actuary. If this approach is used, it should be incorporated into the plan’s funding policy document which identifies why, when and how synchronization will be utilized.

The article is available here.

Additional The Voice articles authored by GRS are available at:

ASOP No. 4 Revisions – Navigating Actuarial Regulations, FPPTA newsletter, The Voice, Annual Edition 2023.

Thinking with Probabilities, FPPTA newsletter, The Voice, Annual Edition 2022.

Uh-ho, We’re in a Pandemic… Now What?, FPPTA newsletter, The Voice, Fall 2020.