Proposed Changes to ASOP 4, 27 and 35

By Lynn M. Young, Andrew Forgrave • July 16, 2018 • 0 Comments

Remember the ASB’s request in July of 2014 for comments on the topic of ASOPs and Public Pension Plan Funding and Accounting? If you are like me and do not focus on public plans, you probably did not pay any attention to the Pension Task Force that was established in December 2014 to develop recommended next steps for the ASB. Nor did I pay any attention to the public hearing in July 2015 on proposed actuarial standards of practice applicable to actuarial work regarding public plans. So I was surprised by their final report as it included suggestions for changes to the ASOPs that would apply to all areas of pension practice.

The Actuarial Standards Board issued exposure drafts of proposed revisions to ASOP 4, ASOP 27 and ASOP 35 that modify the standards to implement the Pension Task Force suggestions. Comment letters on the proposed revisions are due by July 31, 2018.

The proposed revisions to the standards are substantive and important, particularly the proposed changes to ASOP 4. I encourage you to review the proposed ASOPs. The only way to voice our concerns is to submit a comment letter. ACOPA’s Professionalism Committee is working on comment letters regarding the proposed revisions, and if you have comments and do not wish to write your own comment letter, please forward them to Elizabeth Duda at  

Some of the proposed changes are highlighted below.


One of the proposed changes to ASOP 4 is the addition of the following "Investment Risk Defeasement Measure":

If the actuary is performing a funding valuation, the actuary should calculate and disclose an obligation measure to reflect the cost of effectively defeasing the investment risk of the plan. The actuary should calculate the investment risk defeasement measure using the following:

  1. benefits accrued as of the measurement date;
  2. the unit credit actuarial cost method;
  3. discount rates consistent with market yields for a hypothetical bond portfolio whose cash flows reasonably match the pattern of benefits expected to be paid in the future. For this purpose, the actuary should use either of the following: (a) U.S. Treasury yields; or (b) rates at which the pension obligation can be effectively settled. The actuary may use yields of fixed-income debt securities that receive one of the two highest ratings given by a recognized ratings agency; and
  4. assumptions other than discount rates used in the funding valuation or other reasonable assumptions based on estimates inherent in market data, in accordance with ASOP Nos. 27 and 35.

In the ASB’s request for comments on ASOP 4, they have drawn attention to the appropriateness of the discount rate choices, but not the concept of including an “Investment Risk Defeasement Measure.” We have had many clients over the years ask for the cost to terminate a plan, but we have never had a client ask us for the cost to defease the investment risk of a plan. 

One of the other proposed changes is the following gain and loss analysis for a funding valuation: 

The actuary should perform a gain and loss analysis for the period between the prior measurement date and the current measurement date, unless in the actuary’s professional judgment, successive gain and loss analyses would not be appropriate for assessing the reasonableness of the actuarial assumptions. For example, successive gain and loss analyses may not provide decision-useful information about the reasonableness of the actuarial assumptions for a small plan in which a single individual accounts for most of the actuarial accrued liability.

Please note that the concept of the gain/loss pre-supposes an investment return assumption is necessary for a particular funding valuation.


One of changes in ASOP 27 relates to the phase-in of assumptions:

If an economic assumption selected by the actuary is being phased-in over a period that includes multiple measurement dates, the actuary should select a reasonable economic assumption at each measurement date.

The proposed standard also provides this additional guidance regarding the reviewing of assumptions: 

At each measurement date, the actuary should determine whether the assumptions selected by the actuary continue to be reasonable. In making this determination, the actuary should consider reviewing recent gain and loss analyses, and should consider performing or updating an experience study. The actuary also should consider changes in relevant factors known to the actuary that may affect future experience. The actuary is not required to do a complete experience study at each measurement date. However, if the actuary determines that one or more of the previously selected assumptions are no longer reasonable, the actuary should select reasonable new assumptions as appropriate. The actuary should refer to ASOP No. 4 for guidance regarding gain and loss analyses.


The proposed standard has changes consistent with the changes in ASOP 27 to the phase-in of assumptions and the reviewing of assumptions. Additional guidance is provided on the selection of mortality assumptions, including consideration of the recently published and generally available morality table. In addition, the actuary should reflect the effect of mortality improvement both before and after the measure date. Specifically, the assumption for mortality improvement before the measurement date should be disclosed, even if the actuary concludes that such an adjustment is not necessary.