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“Counter-cyclical Contributions” National Council on Teacher Retirement 2009 Annual Conference

“Counter-cyclical Contributions” National Council on Teacher Retirement 2009 Annual Conference. John J. Garrett, ASA, FCA, MAAA Principal and Consulting Actuary Cavanaugh Macdonald Consulting, LLC. October 13, 2009. Background.

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“Counter-cyclical Contributions” National Council on Teacher Retirement 2009 Annual Conference

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  1. “Counter-cyclical Contributions” National Council on Teacher Retirement 2009 Annual Conference John J. Garrett, ASA, FCA, MAAA Principal and Consulting Actuary Cavanaugh Macdonald Consulting, LLC. October 13, 2009

  2. Background • Root cause of contribution volatility is experience that varies from expected • Main source of experience swings is actual investment returns compared to the long term expected rate • Bad experience leads to increased contributions with limited ability to reduce benefits • Good experience leads to contribution reductions and/or benefit improvements

  3. The Current Problem • Historical market value of assets losses • Anticipation of significant contribution increases • Tightened Employer budgets • Call by some to reduce benefits • Benefit reductions typically focus on new entrants • New entrant normal cost is not the problem

  4. Is Asset Smoothing The Answer? • Reduces volatility but does not eliminate economically cyclical contributions • Good times - budget surpluses, decreasing contribution rates • Bad times - budget deficits, increasing contribution rates

  5. Wouldn’t It Be Nice If We Could… • Actuarially reduce contributions during bad times • Actuarially increase contributions during good times • Maintain Actuarial soundness • Comply with GASB and actuarial standards of practice

  6. Effect on Contribution Rates

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