ASOP 4: What Pensions Should Know About the Newly Required LDROM Disclosure
The ASOP 4 Toolkit: Measuring Pension Obligations and LDROM was developed to help pension funds communicate the new requirements of ASOP 4, avoid misunderstanding and misuse of the new disclosure, and communicate the benefits of a well-diversified investment portfolio.
By: Lizzy Lees, Director of Communications, NCPERS
This article was originally featured in the April 2023 issue of The Monitor.
As part of the 2023 revisions to ASOP 4, the Actuarial Standards Board will require a new disclosure, Low-Default-Risk Obligation Measure (LDROM), that will affect future actuarial valuations. This liability measure assumes the pension plan is invested solely in high quality bonds.
It is highly unlikely that a public pension plan would adopt an all-bond investment strategy, and there is no indication that any plans intend to do so. For that reason, the new disclosure has limited practical application for public sector plans. However, understanding this new measure is critically important to ensure the new disclosure is not used to mischaracterize the financial health of a pension plan.
Last year, NASRA, NCPERS, NCTR, and NIRS formed a workgroup to develop the ASOP 4 Toolkit: Measuring Pension Obligations and LDROM to help pension funds communicate the new requirements of ASOP 4, avoid misunderstanding and misuse of the new disclosure, and communicate the benefits of a well-diversified investment portfolio. Over 30 public pension directors, senior staff, actuaries, and communications experts participated in the workgroup and their work shaped the ultimate outcome. The toolkit, which has been endorsed by GFOA, includes three products:
- The first product is a Fact Sheet that presents a clear and simple overview of LDROM—what it is and what it isn't—and provides appropriate context to frame the correct use of the disclosure for stakeholders of the pension plan, including policymakers, system participants and the general public.
- ?The second product is a set of suggested language for public pension actuarial valuations. Following these guidelines will ensure that valuations conform to ASOP 4 and provide context for the measure. Accurate and reliable valuations will maximize stakeholder understanding and the impact on taxpayers' contributions of various liability measures.
- The third product is a set of frequently asked questions on investment diversification and other important topics. These will help pension fund stakeholders with guidance on special considerations for Risk Sharing Plans.
Overall, the ASOP 4 Toolkit: Measuring Pension Obligations and LDROM is an essential resource for pension funds to educate policymakers and others on the best use of this new disclosure to help avoid misunderstandings concerning pension funding.
Later this month, NCPERS will host a webinar, ASOP 4: What Pensions Should Know About the Newly Required LDROM Disclosure, to provide members the opportunity to ask questions about the toolkit and learn more about LDROM. Panelists include Paul Angelo, Senior Vice President & Actuary, Segal; Emily Brock, Director, Federal Liaison Center, GFOA; Debby Cherney, CEO, SBCERA; Dan Doonan, Executive Director, NIRS; and Hank Kim, Executive Director & Counsel, NCPERS.
The webinar will be held on April 13 at 1:00pm ET. Register here to learn more about LDROM and to find out how to provide the appropriate context to frame the correct use of the disclosure.