Important Update to Actuarial Standards Affecting Pension Plan Valuations

By Bolton April 27th, 2022

Actuaries play a key role in helping employers and Pension Boards maintain well-funded and secure pension plans for their current and future retirees. They are guided by the Actuarial Standards Board (ASB) in how the work is performed and what is included in the communications provided to clients. The ASB recently published an update to Actuarial Standard of Practice No. 4 (ASOP 4) covering how actuaries should measure pension plan obligations and costs and how to determine contribution amounts.

Primary Impacts of Changes

Low Default Risk Obligation Measure (LDROM)

Plans must disclose and explain the significance of a determination of pension liabilities made using a discount rate based on low risk fixed income securities (for example, using US Treasury Yields as the discount rate). The interpretation and usefulness of the new liability measurement will vary from plan to plan and employer to employer. Plan sponsors will need to work with their consultants to arrive at the appropriate understanding under their own circumstances.

  • Public sector pension plans: This is likely a new measurement and is in addition to the current measurements used in determining plan funding and accounting liabilities.
  • ERISA covered multiemployer plans: Actuaries can use existing Current Liability values to satisfy the requirement though there may need to be additional disclosure explaining the significance of the measure.
  • ERISA covered single employer plans: Liabilities determined for ASC 715-30 or using non stabilized ERISA funding rates can satisfy the LDROM requirement, though the additional disclosure may be needed as well.

Projected Period Until Full Funding

For plans with any unfunded liabilities, the actuary must disclose the length of time under the existing funding policy for those unfunded liabilities to be fully paid off.

  • Public sector pension plans: Plans using open (rolling) amortization periods may have longer than realized paydown periods.
  • ERISA covered multiemployer plans: Reconciling collectively bargained contribution rates to plan needs could provide useful information.
  • ERISA covered single employer plans: Various iterations of interest rate relief may lengthen the effective amortization period beyond the 15-year statutory requirement, particularly for plans electing asset smoothing.

Determination of an Actuarially Determined Contribution

ERISA covered plans have required minimum and maximum tax-deductible contribution computations that meet this requirement. If a public sector plan uses a “Fixed Rate” contribution basis, the actuary and the plan may need to develop an actuarial funding policy to compare to the Fixed Rate level.


Actuarial reports with a measurement date and issuance date on or after February 15, 2023 must comply with the revised ASOP 4.

For more information on how ASOP 4 may impact your programs or questions about how it works contact your Bolton consultant.

Please Note: The information contained in this article is not legal advice and should not be relied upon or construed as legal advice. This article for general informational purposes only and does not purport to be complete or cover every situation. Please consult your own legal advisors to determine how this article may affect you.