§ 203.5. Procedure for authorization of the use of an approximation technique for the valuation of ancillary benefits.
(a) Authorization to utilize an approximation technique for the valuation of ancillary benefits. An actuarial valuation report that uses an aproximation technique for the valuation of ancillary benefits shall include a statement, signed by the actuary, justifying the use of the approximation technique. The statement shall indicate the following:
(1) In general, the impracticality, difficulty and undesirability to the municipality and to the participants and benefit recipients of the municipal pension plan of utilizing the actuarial cost method used to value the retirement benefit to also value ancillary benefits. The statement shall show the greater practicality, facility and desirability to the municipality and to the participants and benefits recipients of the municipal pension plan of utilizing the approximation technique for the valuation of ancillary benefits.
(2) Whether an approximation technique has been utilized for the valuation of ancillary benefits in prior actuarial valuations prepared for the municipal pension plan. If so, the approximation technique which was used. If no prior approximation technique has been used, the specific reasons why an approximation technique is currently being sought, although not utilized previously.
(3) In the best judgment of the actuary, the extent and magnitude of the risk of distortion in the actuarial valuation report data as a result of the use of the approximation technique rather than the actuarial cost method that is used to value the retirement benefit. The statement shall show special steps that the actuary intends to take to monitor a distortion in the actuarial valuation report data, if any, that results from the use of the approximation technique.
(b) Acceptable approximation techniques. The acceptable approximation technique for the valuation of ancillary benefits shall be a loading factor. The loading factor shall be percentage factors used to adjust the actuarial present value of future retirement benefits for active members of the municipal pension plan to reflect an expected increase in the accrued liability and normal cost attributable to ancillary benefits. The percentage loading factors utilized shall be set utilizing the best judgment of the actuary preparing the actuarial valuation report and may not result in an increase in the total normal cost attributable to ancillary benefits of more than 15% or an increase in the total normal cost attributable to an ancillary benefit of more than 10%.
(c) Additional documentation required to accompany actuarial valuation report. If an approximation technique for the valuation of ancillary benefits is used, the actuary preparing the actuarial valuation report shall also include the following:
(1) Additional documentation specifying the ancillary benefits for which the approximation technique is used.
(2) The percentage increase in normal cost resulting from the approximation techniques in total for ancillary benefits.
(3) The percentage increase in normal cost resulting from the approximation technique for an ancillary benefit.
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