Takeover from Prior Actuary

By Richard Kutikoff • October 12, 2016 • 0 Comments

Editor’s note: This is the second of a two-part series on takeovers. Part 1, “Losing a Client to a New Actuary,” explores the best and worst practices in working with the new actuary when you are the old actuary. Part 2 looks at the other side of the coin — the best and worst practices in working with the old actuary when you are the new actuary.

It’s Monday at 9:01 a.m. and you see the following email: Dear Mr. Actuary: We would like to hire your firm to replace the actuary for our pension plan.

That’s great, you think, as you look forward to telling your boss about the good news. Then you remember the last time you got a message like that — the takeover was a disaster! The prior actuary wasn’t cooperative, the new client didn’t understand why it wasn’t a simple handoff, your boss wasn’t happy, and you were right in the middle.

Clean takeovers don’t happen automatically. Your objective is to ensure a clean transition. Sometimes, ugliness is unavoidable. But there are certain steps that you can take to increase the likelihood of a clean takeover — or conversely, steps that you can take to virtually ensure ugliness.

As a starting point, understand the dynamics of the takeover. There are four possibilities:
Old Actuary New Actuary (You)
Professional Professional

You are the new actuary. You can choose to be either professional or uncooperative. You may or may not know what the old actuary will be like. 

Situation 1. You are professional and the old actuary is professional. No problem. There might be some differences, but these can generally be resolved.

Situation 2. You are professional and the old actuary is uncooperative. By being professional, you might wind up encouraging the old actuary to be more cooperative. If not, continue to tactfully try to get the information (if need be, a reminder about ABCD, the Joint Board and his obligations under the various codes of conduct might help — refer to the Appendix below), and perhaps get the client involved. (The client may not want to get involved, but it does affect him. One of your objectives is to make sure that the client knows that you are meeting your responsibilities under the various codes of conduct, and that you should not be blamed for problems with the transition.)

Situation 3. You are uncooperative and the old actuary is professional. You are overly demanding, either for documents, data or timing. Taking this approach, you might be unnecessarily making things difficult for the old actuary. It might result in less cooperation from the old actuary, thus making the transition more difficult for you.

Situation 4. You are uncooperative and the old actuary is uncooperative. A recipe for disaster, with the soon-to-be very upset new client in the middle. This can get ugly, possibly involving attorneys, the ABCD or the Joint Board. (Again, refer to the Appendix.)

While you cannot control the old actuary, it’s still your choice on how you should act.

Get Some Background

Do you know the old actuary? Does he have a good reputation or a bad one? Or, more likely, you may not know either way, but you will find out fairly quickly whether he is professional or uncooperative.

Talk to your new client. Get a sense of why he is changing actuaries. Was it price? Was it poor communication by the prior actuary? Was it bad results and he needed a scapegoat? Did the prior actuary do a good job, but you are a better actuary, more personable, have a better relationship with a key advisor, etc.

Then manage his expectations during the takeover process.

Initial Data Request

Remember, the prior actuary is probably not happy about losing this client. Then again, he may be ecstatic — so staying in his good graces may serve you well in getting useful information.

You can respect his time — he has other clients — and he might not be able to charge for helping you. Therefore, giving a complete, precise list of items needed with preferred deadlines sets the stage for a favorable outcome. Show courtesy, which is often reciprocated. Besides, there may come the time that you will lose a client to this actuary! Promptly review the material that you receive, and ask clear questions.

Or you can be pushy. “Just give me everything you have ASAP” is a recipe for disaster.  Asking for this information at the last minute won’t endear you to the prior actuary.  Getting his response, sitting on it for three months, and then asking ASAP followup questions will lead him to place your picture on a dartboard.

Which of these are you?

How to Resolve Questions and Differences

The prior actuary is your friend. He knows a lot more of the history than you do. He knows where the bones are buried. Be nice to him.

Do your research, then ask all or most of your questions up front. Avoid minutiae. It will simplify the process,

If you don’t agree with something, saying “It appears that…” is less confrontational than saying “Your calculations don’t make sense...” or “Where the #!X$&@ did you get those ridiculous numbers from?” Immediately accusing him of errors will not get the nicest response (especially if you would like a timely one). It’s quite possible that you’re overlooking something, like an old minimum benefit, a rehire date, etc. If it’s a difference of interpretation among actuaries, that’s fair — don’t insist that you’re right. If he is wrong and you’re tactful about it, he’ll probably agree. The key is not to hold it over him; rather, the intent is how to resolve the differences so that you can move forward.  

If you’re nasty, with last-minute ASAP questions that show carelessness in your research, the old actuary can choose to be minimally helpful. He doesn’t have to tell you about everything he knows, and if you don’t find out on your own, that’s your problem. He knows why things were done a certain way. You could tell current management that you would have never recommended an expensive lump sum provision in the plan; wouldn’t it be nice to know that it was deliberately put in place five years ago for the father of the current owner?

Asking your questions in dribs and drabs will lengthen the process and annoy the prior actuary. Think about how much you enjoy an auditor’s “just one more question” on Monday, followed by “just one more question” on Friday, followed by ...   

‘Unresolvable’ Differences

There may come a time where something is unavoidably (and maybe even undeniably) wrong. If you have done a good job, “unresolvable” can often be solved without it getting ugly. If not, it gets ugly. “So what,” you might say. Well, many years ago, an actuary told me, “When the blood spills, everyone gets wet.”

Let’s say the prior calculations appear to be wrong.

Is your objective to stand your ground and be difficult? If you are really wrong, do you really want to defend against costly litigation or an ABCD or Joint Board complaint? Do you really want this to be ugly — for you? (Again, get very familiar with the Appendix.)

If everyone is behaving nicely, the prior actuary might redo last year’s work and not even charge the client. Good result — the client can understand differences among professionals.  

Or, he might be willing to redo last year’s work but only if he is paid for it. Not as good a result — the client can understand differences among professionals, but why should he pay for it? 

Or, you might have to redo last year’s work, but you want to be paid for it. Not as good a result — the client already paid for it and isn’t happy. Then again, that may be why he fired the actuary.

Or, it may be serious enough that you feel the need to file an ABCD or Joint Board complaint. If so, take this very, very seriously. Get a second opinion. It might be satisfying to you — that way, “truth and justice” can prevail — until you have to defend your accusation (takes time), or find out that the accused actuary isn’t as wrong as you think (oops!), or realize that even you have made similar mistakes in the past due to time pressure, a fight with your wife, or (insert applicable excuse here).

Now, let’s say the prior actuary simply refuses to provide anything.

Keep trying tactfully to obtain the necessary takeover information. If this doesn’t work, remind him of his obligations under the various codes of conduct, and perhaps get the client involved. Again, the client should know what is happening — it does affect him.  

The client might have some of the information needed. It might more difficult for the client to find, but hopefully he can find it.

If all else fails, the client can hire an attorney, particularly if the plan is large enough. And you can file an ABCD or Joint Board complaint. It would be unfortunate for it to go this far, but sometimes nothing else works.

Special Situations: Last-Minute Takeovers

You get the takeover in late August; the calculations for the prior year haven’t been done, there is a Sept. 15 contribution deadline, an Oct. 1 AFTAP certification deadline and an Oct. 15 Form 5500 filing deadline. Don’t tell the new client, “Sure, no problem. We’ll get it done in time.”

First of all, why is this being done so late? Why couldn’t the prior actuary complete the work?

Maybe the prior actuary fired the client in January, and the client didn’t think about hiring a replacement for six months. Or, perhaps the client didn’t respond to the prior actuary’s data request for six months, fired him and then hired a replacement.

In either case, it’s the client who is being irresponsible. He can insist all he wants, but he has to respect you as a professional (and your predecessor as well). If he doesn’t care, do you really want this client? Unfortunately, missing these deadlines may be unavoidable, with consequences to the client. There is only so much that you can (or should) push the prior actuary; he is not required to drop everything because of the poor judgment (or carelessness) of the plan sponsor. Remember, if you are inappropriately insistent with the prior actuary, you might be the one acting unprofessionally.


The ARA Code of Conduct, the Actuary’s Code of Professional Conduct, Circular 230 from the IRS and the regulations by the Joint Board for the Enrollment of Actuaries provide guidance on the performance of actuarial services.

As it applies to takeover situations, actuaries are required to act with integrity, courtesy and cooperation, and are generally prohibited from withholding of records. You should become familiar with this guidance, particularly with the specific requirements and exceptions.

Remember, allegations of violations of the Codes of Conduct will be judged by your peers.  Allegations of violations of Circular 230 will be judged by the IRS. Allegations of violations of the Joint Board’s regulations will be judged by the Joint Board.

If you are considering taking actions that are uncooperative, you should consider how you would respond to an allegation of violation. If you are working with another actuary who is being uncooperative, you may wish to bring these requirements to his attention.