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Academy Urges Prompt Pension Action


OMETHING NEEDS TO BE DONE to fix the pension discount rate. And it needs to be done quickly because continuing uncertainty puts the future of many defined benefit (DB) pension plans in this country at risk, the Academy’s senior pension fellow, Ron Gebhardstbauer, told the Senate Finance Committee March 11. “Major financial decisions are being made today that depend on what next year’s pension contribution will be,” Gebhardtsbauer testified at a committee hearing on funding rules for DB plans. “Bankruptcy judges are being forced to decide today whether employers before them can afford their pension plans in 2004. They may decide the employer cannot afford the pension plan, and later find out that the rule was fixed and that the employer could have afforded it. Bad decisions can result.” The discount rate for determining liabilities in certain pension plan calculations, including current liability for funding purposes and Pension Benefit Guaranty Corp. (PBGC) variable premiums, is based on the 30-year Treasury-bond rate. With declining 30-year Treasury rates, contribution requirements for the adequate funding of pension plans became distorted and employers faced unusually high contributions, premiums, and lump sum amounts. And in October 2001,

Inside NAIC Roundup A digest of Academy action at the spring NAIC meeting . . . . . . . . PAGE 2 2003 Washington Forum Details on sessions and speakers . . . . . . PAGES 4-5 Hot Off the Press Monograph on federal insurance charters . . . . . PAGE 6 Issue brief on DB-K Plus pension plans . . . . . . . . PAGE 6 Issue brief on whipsaw in cash balance plans. . . . . . . . . PAGE 7 Speak Up Cat got your tongue? Consider the Academy’s new primer on public communications . . . . . . PAGE 8

Ron Gebhardtsbauer, left, confers with Sen. Charles Grassley (RIowa) before the start of the hearing.

the Treasury Department discontinued the 30-year bond. Temporary pension interest rate relief was enacted last year with the passage of stimulus legislation that increased the discount rate for pension funding and PBGC premiums. But the law applies only to 2002 and 2003. Referring to a study completed last year by the Academy’s Pension Practice Council, Gebhardtsbauer told senators that either a high-quality corporate bond See PENSION ACTION, Page 7

2003 Washington Forum

Public Policy, Politics, and Professionalism


in Washington today that may have a profound effect on your professional life tomorrow. Consider: Federal reform of medical malpractice liability insurance appears to be on the legislative fast track. And standing in the wings are potential drafts for an optional federal insurance charter, the Bush administration’s retirement savings proposals, and revisions of international accounting standards. ECISIONS ARE BEING MADE

Prepare for these and other emerging issues by attending the Academy’s 2003 Washington Forum May 9 at the Ritz Carlton Hotel in Pentagon City. Senior congressional staff will brief attendees on the major legislative and policy issues for 2003. Concurrent sessions focusing on retirement security, medical malpractice reform, international accounting issues (for both casualty and life and annuity actuaries), the increase in actuarial malpractice litigation, optional federal charters and othSee FORUM, Page 4

Actuarial UPDATE

Choosing a New Contribution Rate


Calendar APRIL 6-8 SOA/LIMRA/LOMA pension and annuity conference, Baltimore

7 Academy Pension Practice Council visits Capitol Hill, Washington

Academy NEWS Briefs

9 Academy Life Financial Reporting Committee meeting, New York

10-11 SOA advanced retiree group benefits seminar, New Orleans 10-11 CAS Bowles Symposium, Atlanta 23 Academy Pension Accounting Committee meeting, Chicago

MAY 8 Academy Board of Directors meeting, Washington 9 Academy Washington Forum, Washington 10 Academy Council on Professionalism meeting, Pentagon City, Va. 18 Academy Pension Practice Council meeting, Washington 18-21 CAS spring meeting, Marco Island, Fla. 19 Academy Pension Committee meeting, Washington 28 Academy Life Valuation Subcommittee meeting, Washington 28 SOA seminar on hedging VA and EIA products, Washington 29-30 SOA spring meeting (life insurance), Washington

JUNE 2-3 CAS reinsurance seminar, Philadelphia 11 Academy Life Financial Reporting Committee meeting, Chicago

NAIC Roundup


N ACADEMY report on Medicare supplement insurance experience from 1996 to 2000 was presented in a seminar for the NAIC’s Accident and Health Working Group at the NAIC spring meeting in Atlanta. The report, an update of earlier Academy findings, examines the relationships between various factors and Medicare supplement insurance claim cost trend. Factors examined include ® Annual claim cost trend nationwide, by geographic area, plan, and state ® Hospital outpatient costs ® Coverage for beneficiaries under age 65 ® Prescription drug coverage ® Guaranteed issue and Medicare+Choice plans ® Renewal lapse rates. The Medicare Supplement Work Group compiled the report. Mike Abroe, chairman of the

work group, and Bill Weller, a work group member, made the Academy’s presentation. Also at the spring meeting, the Academy’s Joint Risk-Based Capital Work Group updated earlier findings for the NAIC’s Risk-Based Capital Task Force on changes in life, property/casualty, and health RBC formulas from 2001 to 2002. And members of the Academy’s newly formed Variable Annuity Reserve Work Group made a presentation to the Life and Health Actuarial Task Force (LHATF) in the hopes of stimulating discussion on the issue of variable annuity reserves. In other action, the NAIC adopted revisions to the Standard Nonforfeiture Law for Individual Deferred Annuities. Over the past year, members of the Academy’s Life Practice Council participated in discussions and submitted several reports to the LHATF on the topic.

11 SOA seminar on UL and VUL products, Oak Brook, Ill. 12-13 SOA Product Development Symposium, Oak Brook, Ill.

A Better Mousetrap Got a bril-

16-17 ASB meeting, Washington 18 CIA professionalism workshop, Victoria, B.C.,

liant actuarial idea? Care to talk about it? The 38th annual Actuarial Research Conference, Aug. 7-9, at the University of Michigan in Ann Arbor, Mich., might be just the ticket for you. Cosponsored by the SOA and the Academy, the conference offers academics and practitioners an opportunity to meet and discuss actuarial problems and their solutions. Presentations on all topics of interest to actuaries are welcome. If you are interested in presenting a paper, submit an electronic copy of the title and abstract to Curtis Huntington at by June 1. Papers that are presented at the conference will be published in the Actuarial Research Clearing House and will be available electronically on the conference website, www.math.LSA.

Canada 19-20 CIA annual meeting, Victoria, B.C., Canada 21-25 NAIC summer meeting, New York 23-25 SOA spring meeting (health, pension, longterm care), Vancouver, B.C., Canada 24-25 Symposium on current pension actuarial practice, Vancouver, B.C., Canada (Academy, SOA)

JULY 14-15 CAS seminar on loss distributions, New York 27 Academy Pension Practice Council meeting, Seattle 28 Academy Pension Committee meeting, Seattle 28-29 CAS risk and capital management seminar, Washington 29-30 CAS seminar on basic DFA, Washington 29-30 CAS seminar on advanced DFA, Washington

AUGUST 4-5 Academy leadership meeting, Washington 7-9 Actuarial Research Conference, Ann Arbor, Mich. (Academy, SOA)

SEPTEMBER 4-5 SOA Stochastic Modeling Symposium, Toronto 8-9 Casualty loss reserve seminar, Chicago (Academy, CAS)

9-10 CAS asset liability management seminar, Chicago 11-12 SOA Valuation Actuary Symposium, Coronado, Calif. 13-17 NAIC fall meeting, Chicago 15 Academy Committee on Actuarial Public Service meeting, Washington 17-19 AFIR Colloquium, Maastricht, The Netherlands REGISTER NOW ACADEMY WASHINGTON FORUM MAY 9


Actuarial U P D A T E

International Health At its May meeting, the International Actu-

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arial Association is expected to approve the formation of a new health section that will provide an international perspective on health actuarial practice, public and private health insurance, and health policy matters. U.S. representatives to the new section are John Bertko, chief actuary for Humana, and Howard Bolnick, chairman of InFocus Financial Group Inc. Section committee members are already involved in plans for the Second International Health Colloquium, to be held in April 2004 in Dresden, Germany. Terrorism Update The Academy

presented information from its Group and Health Coverage in the Wake of September 11, at the spring meeting of the National Conference of Insurance Legislators in Savannah, Ga.


Professionalism Report Enclosed with this issue of the Update is the annual combined professionalism report for 2002. Like last year’s report, the printed form of the re-

port contains only letters from the chairpersons of the ABCD, the ASB, the Joint Committee on the Code of Professional Conduct, and the Academy’s Committee on Qualifications, as well as statistical information on the cases administered by the ABCD. For a fuller report, go to the Academy’s website. CASUALTY NEWS

Richard Kipp, a consult-

ing actuary at Milliman USA in Radnor, Pa., has joined the Medical Malpractice Subcommittee. ® Joining the P/C Risk-Based Capital Committee are Wendy Germani, senior actuary with the Texas Department of Insurance in Austin, Texas; G. Christopher Nyce, manager for KPMG LLP in Radnor, Pa.; Tony Phillips, vice president, actuarial, for Accident Fund Insurance Co. of America in Lansing, Mich.; and Robert Wolf, principal and consulting actuary with Mercer Risk Finance & Insurance Consulting in Chicago.

JOB CONNECTION The following jobs were recently posted in the Contingencies job bank:

Tony Hammond, chief

actuary, senior products, at Humana Inc. in Louisville, Ky., is the chairperson of the Academy’s new CMS Medicaid Rate Certification Work Group. The cochairperson of the work group is Kevin Russell, a principal with Mercer Human Resource Consulting in Phoenix. Other members are Thomas Carlson, a consulting actuary with Deloitte & Touche LLP in Minneapolis; April Choi, vice president and actuary at Wellpoint Health Networks Inc. in Thousand Oaks, Calif.; Rob Damler, a principal with Milliman USA in Indianapolis; Tim Harris, a principal with Milliman USA in St. Louis; Joann Hess, director of actuarial services for Coventry Health Care Inc. in Bethesda, Md.; Julia Lambert, a consulting actuary with Reden & Anders Ltd. in Denver; Arlene Livingston, an actuary with the California Department of Health Services in Sacramento; Scott Lockwood, an actuary at Humana Inc. in Louisville, Ky.; Gary McCollum, an actuary with the California Department of Health Services in Sacramento; Mary Murley, a principal at Reden & Anders Ltd. in Denver; David Ogden, a consulting actuary with Milliman USA in Brookfield, Wis.; Bob Ruderman, an actuary with the California Department of Health Services in Sacramento; Martin Staehlin, a director at PricewaterhouseCoopers in Chicago; Jill Stockard, a senior consultant at PricewaterhouseCoopers in Chicago; Gordon Trapnell, president of Actuarial Research Corp. in Annandale, Va.; and Todd Whitney, vice president, actuarial services, for Well Care HMO Inc. in w w w. a c t u a r y. o r g

Tampa, Fla. Michael Burks, vice president and actuary for Wellpoint Health Networks Inc. in Atlanta, and Jerry Winkelstein, vice president and actuary for Wellpoint Health Networks Inc. in Woodland Hills, Calif., have joined the Association Health Plans Work Group. ® The name of Jeffrey Nohl, senior vice president for strategic planning and marketing services for Wisconsin Physicians Service in Madison, and a member of the Terrorism/Extreme Events Work Group, was omitted from an article in the February Actuarial Update about the work group’s new monograph, Group and Health Coverage in the Wake of September 11. Nohl was very involved in drafting the monograph. ®


Ron Gebhardtsbauer, the Acade-

my’s senior pension fellow, met recently with Steven Kandarian, executive director of the PBGC, to discuss PBGC’s financial situation. Gebhardtsbauer also met with Rep. Rob Portman (R-Ohio) to discuss suggested alternatives to the 30-year Treasury rate (see related story on Gebhardtsbauer’s Senate testimony on Page 1). ® Wendy McFee, a worldwide partner with Mercer Human Resource Consulting in New York, has joined the Committee on Pension Accounting. The new vice chairperson of the committee is Mark Beilke, director of employee benefits research at Milliman USA in Vienna, Va.

Tempted? For further information and more listings, go to the Contingencies job bank ( html). New jobs in both the public and private sectors are added on

actuary with Tillinghast-Towers Perrin in Atlanta, was quoted in a front-page article in USA Today on medical malpractice insurance. ® Ron Gebhardtsbauer, the Academy’s senior pension fellow, and Larry Sher, a member of the Academy’s Pension Practice Council and a principal and director of research with Buck Consultants in New York, were quoted in a Fortune article on corporate plans to jettison defined benefit pension plans for their employees. ® Alastair Longley-Cook, senior actuarial consultant for Tillinghast-Towers Perrin in Weatogue, Conn., and chairperson of the Life Capital Ade-

quacy Subcommittee, was quoted in a National Underwriter article about variable annuity writers seeking reinsurance for some of the guarantees in their products. The article referred to the subcommittee’s project to establish risk-based capital requirements for products with guarantees. ® James Kenney, a consulting actuary with Clark/Bardes Consulting in Berkeley, Calif., and a contributing editor of the Enrolled Actuaries Report, was quoted in an Associated Press story on US Airways’ proposal to terminate its pilots’ pension plan. Kenney testified on behalf of the pilots before a federal bankruptcy judge. Actuaries disagree all the time, particularly in choices of assumptions and methods. According to Precept 10 of the Code of Professional Conduct, these differences of opinion should be acknowledged with courtesy, respect, and objectivity.


James Hurley, chairperson of the

Academy’s Medical Malpractice Subcommittee and a consulting

Joe Sutliff


American Express seeks an FSA with 10 to 15 years financial, insurance industry, or actuarial experience for the position of vice president of finance and chief actuary in its Minnesota office. UnitedHealth Group seeks an FSA or ASA with six or more years of broad experience in actuarial disciplines for the position of director of pricing in its Connecticut office. Medical Liability Mutual Insurance Co. seeks a property/casualty actuary for an actuarial analyst position in its New York office.

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2003 Washington Forum Public Policy, Politics, Professionalism May 8–9, 2003 THURSDAY, MAY 8 Washington Forum Opening Reception 6:00 p.m.–8:00 p.m. Join your colleagues and network with some of the Academy’s key contacts in Washington D.C. at an elegant welcoming reception for the 2003 Washington Forum.

FRIDAY, MAY 9 Washington Luncheon Noon–2:00 p.m. ® Keynote Address: Dr. William C. Freund, Chief Economist Emeritus of the New York Stock Exchange An insightful global economic forecaster, William Freund is as famous for his wit as he is for his unstinting analysis of the economy. Having served as chief economist of the NYSE for 18 years, he has repeatedly demonstrated a keen ability to predict future economic trends. The New York Times called him a “unique economist” because he “knows the practical world of business and finance as well as the world of research and academia.”

In his book, People and Productivity, he correctly anticipated the improving competitiveness of American business long before his colleagues talked about rising productivity. ® Presentation of the Robert J. Myers Award for Public Service In 1994 the Academy established this award to recognize the extraordinary lifelong public service of Robert J. Myers, who was chief actuary for the Social Security Administration from 1947 to 1970. Recipients of the award are selected through the Academy’s Committee on Actuarial Public Service based on their contributions to the common good through service to the government or other organizations in the public sphere.While honoring individual recipients, the award also highlights the significant benefits the public receives from the actuarial profession. ® Note on Continuing Education The American Academy of Actuaries is a provider of continuing education for actuaries under the Qualification Standards for Prescribed Statements of Actuarial Opinion. For actuaries practicing in the life, health, and casualty areas, up to six hours of organized continuing education activity credit may be earned. For pension actuaries, up to one hour of organized continuing education activity credit may be earned. We cannot guarantee credit, either as core or non-core, since the final determination rests with the Joint Board for the Enrollment of Actuaries.

Forum, continued from Page 1 er issues in the life insurance practice area, and a debate on Social Security reform are scheduled. “As a profession, we must be prepared to respond to the public policy challenges on our horizon,” said Academy President Robert Anker. “The Washington Forum is a unique opportunity for actuaries to learn more about the key issues from national experts in and outside of the profession. This is more than an educational opportunity — it’s an opportunity to help shape our future.” Actuaries practicing in the life, health, and casualty areas can earn up to six credits, and pension actuaries up to one credit, for continuing education activity at the Forum (see above). The Forum also includes the Academy’s annual Washington luncheon. This year’s keynote speaker is William Freund, chief economist emeritus of the New York Stock Exchange. Freund will be speaking about the implications of Sarbanes-Oxley on Wall Street and the actuarial profession.


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Another feature of the Washington luncheon will be the presentation of the 2003 Robert J. Myers Public Service Award. Forum registration fees start at $400 for Academy members who register by April 11. Academy members who work as government actuaries may attend the Forum at no cost (see the enclosed registration form for a complete schedule of fees). To register online, or to download a registration form, go to, or contact Meeting Planner Denise Winston (202-2238196;

CONCURRENT SESSIONS, FRIDAY, MAY 9 Opening Breakfast Capitol Hill Update 8:00 a.m. – 9:45 a.m. Senior Senate and House congressional staff members will highlight major issues at the national level from both sides of the aisle. Speakers: Robert A. Anker, Academy President Hazen Marshall, Majority Staff Director, Senate Budget Committee Thomas Kahn, Minority Staff Director, House Budget Committee

Concurrent Sessions A

10:00 a.m. – 11:45 a.m.

Is Retirement Security Under Fire? From new cash balance pension regulations and the Pension Benefit Guaranty Corporation’s deficits, to the Bush administration’s retirement savings proposals, hear from a panel of experts how the policy debates in Washington could dramatically change the pension world in the near future. A1

Speakers Kenneth A. Kent, Academy Pension Practice Council Paul T. Shultz, Director, Employee Plans Rulings & Agreements, Internal Revenue Service Stuart Sirkin, Director, Compensation Policy and Research, Pension Benefit Guaranty Corp. Paul Zurawski, Deputy Assistant Secretary for Policy, Employee Benefits Security Administration A2 Medical Malpractice Reform — Is Now the Time? Medical malpractice reform will have an enormous impact on both casualty and health insurance, as well as the delivery of health care. Panelists will provide an in-depth assessment of the legislative, political, and insurance issues related to medical malpractice liability and insurance reform. Speakers Alfred A. Bingham, Jr., Chairperson, Academy Committee on Federal Health Issues James D. Hurley, Chairperson, Academy Medical Malpractice Subcommittee David V. Axene, Partner, Ernst & Young LLP Others TBD

For the Life, Health and Annuity Actuary — International Accounting Issues The Financial Accounting Standards Board has indicated that it intends to make U.S. accounting standards converge with the standards being developed by the International Accounting Standards Board. This session will highlight those aspects of the accounting changes being proposed by the IASB that are most important to life, health, and annuity actuaries with emphasis on the arguments for and against those proposals. A3

Speakers Godfrey Perrott, Academy Life Practice Council William C. Hines, IAA Standards Committee Alan Close, Northwestern Mutual

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A4 Actuarial Malpractice — A Growing Concern An increase in actuarial malpractice litigation is a growing concern for actuaries. Learn the reasons for the growth in litigation and hear practical advice on how to protect yourself from litigation. Speakers Lauren Bloom, Academy General Counsel and Director of Professionalism Ralph Levy, Esq., expert on professional malpractice litigation Charles A. Bryan, President, CAB Consulting

Concurrent Sessions B

2:10 p.m. - 3:55 p.m.

For the Casualty Actuary — International Accounting Issues The Financial Accounting Standards Board has indicated that it intends to make U.S. accounting standards converge with the standards being developed by the International Accounting Standards Board. This session is designed to highlight those aspects of the accounting changes being proposed by the IASB that will affect casualty actuaries with emphasis on the arguments for and against those proposals. B1

Speakers TBD B2 The Pressures on Reform — A Debate on Social Security The demographic and budgetary pressures on Social Security grow while political deadlock continues to hold the day. A review of the actuarial condition of Social Security will precede a debate on various reform proposals, as well as the political challenges it faces now and in the future. Speakers Ron Gebhardtsbauer, Academy Senior Pension Fellow Estelle James, Urban Institute David Certner, Director of Federal Affairs, AARP B3 Hot Issues in Life and Annuities From the implementation of the Sarbanes-Oxley Act to the possibility of an optional federal charter, the status of genetic testing legislation, potential tax code changes, and the new direction the Securities and Exchange Commission is taking, speakers will cover those topics that are highest on the national agenda in May. Speakers Henry Siegel, Academy Life Practice Council Gary Hughes, General Counsel, American Council of Life Insurers* Timothy J. Tongson, Chairperson, Academy Federal Charters Work Group Others TBD B4 Actuarial Malpractice — A Growing Concern (Repeat of morning session)

Discussion Forum 4:00 p.m. - 4:30 p.m. The Future of the Actuarial Profession — A Time of Convergence? Academy President Robert A. Anker will lead an open discussion of the forces affecting the actuarial profession, including changes in government policy and globalization. How the actuarial profession is participating in guiding and reacting to those changes will also be discussed. Members of the audience will be encouraged to contribute ideas on how the role of the profession should be expanded in dealing with those forces. Actuarial U P D A T E

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Academy Cultivates New Pension Hybrid


OR POLICY-MAKERS who are looking for a way to level the play-

ing field between defined benefit (DB) and defined contribution (DC) pension plans, the Academy has a suggestion. The DB-K Plus plan. Essentially a DB plan with 401(k) features, the DB-K Plus plan marries the best features of each option, from both employee and employer perspectives. In a new issue brief, DB-K Plus: A Defined Benefit Plan with 401(k) Features, the Academy’s Pension Committee lays out some of the advantages of the new hybrid. Because some of the rules that govern DB plans contradict rules governing 401(k)s, and vice versa, the issue brief suggests that the new hybrid follow DB rules with several significant modifications, including ® Allow pretax employee contributions or deferrals. ® Allow matches. ® Provide a small-business tax credit for starting new plans. ® Allow better returns than Treasury rates, including returns based on stock and bond indexes. ® Allow immediate participation at hire without reflecting in discrimination tests. ® Allow phased retirement. At the same time, DB-K Plus plans could retain the advantages of certain DB features (many of which are garnering renewed interest from policy-makers in the wake of Enron) such as automatic qualified joint and survivor annuities as the default option and

guarantees from the Pension Benefit Guaranty Corp., the federal body created to guarantee basic pension payments from bankrupt DB plans. Other rules will be needed to ensure that these plans are viable for employers and employees, the issue brief cautions. These might include ® Separately applied maximums to DB and DC parts. ® The ability to revise investment credits/guarantees in the future. ® The ability to move benefits from the DB to the DC side and vice versa. ® Developing rules on conversions from current plans. ® Developing simple funding rules appropriate for accountbased plans. The Pension Committee developed the issue brief under the guidance of Donald Segal, chairperson, and Carolyn Zimmerman, vice chairperson. Other committee members who contributed to the issue brief are Vincent Amoroso, Judy Anderson, Chester Andrzejewski, Richard Barney, Mark Beilke, Ed Burrows, Lawrence Deutsch, Ron Gebhardtsbauer, Allen Gorrelick, Dennis Graf, David Kass, Ethan Kra, Lisa Larsen, Christine Mahoney, John Moore, Brian O’Konski, Nadine Orloff, Lawrence Sher, William Sohn, Amy Timmons, James Verlautz, and Lawrence Wilson.

Building a Better Federal Insurance Charter



the finishing touches on a monograph highlighting concerns about an optional federal insurance charter. Aimed at policy-makers and Academy members, The Role of the Actuary Under Federal Insurance Regulation outlines several essential components the work group feels should be incorporated into any federal charter proposal. Actuarial guidance plays an integral role in the current state-level regulatory system, the monograph states, and should play an equivalent role in any federal system to ensure the same high level of integrity for insurance systems opting for federal oversight. In the monograph, the Academy work group lays out four essential components for any federal charter proposal: ® Establish an office of chief actuary to regulate and supervise the actuarial and solvency requirements of federally regulated insurance companies. ® Require that the office of chief actuary be involved in the development of the actuarial aspects of regulations and pronouncements related to solvency protection. ® Define the responsibilities of the office of chief actuary regarding the review of federally regulated insurance companies. ® Define the minimum actuarial requirements that federally regulated insurance companies must meet and submit to the


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office of chief actuary. The monograph builds on these four components and also includes an explanation of the current role actuaries play in the state-level insurance regulatory system. Because one of the primary objectives of any insurance regulatory system is to protect insurance consumers and preserve the financial integrity of the insurance industry, the work group argues that incorporating these four components in any federal charter proposal or legislation is necessary. In March 24 annual visits with congressional staff and policy-makers, members of the Academy’s Financial Reporting Council, in conjunction with the Casualty and Life Practice Councils, discussed the status of legislative initiatives to create federal charters. A full report on the Capitol Hill visits will run in the May Actuarial Update. Tim Tongson, a member of the Financial Reporting Council, chaired the work group that developed the monograph. Other members of the work group who helped draft the monograph are Chuck Bryan, Kermitt Cox, Tracey Polsgrove, and Jim Rech. — ETHAN SONNICHSEN

Pension Action, continued from Page 1 rate or an annuity-pricing rate would be an appropriate permanent substitute for the 30-year Treasury rate. Gebhardtsbauer also stressed the importance of changing current funding laws to allow companies to contribute more money to their funds in good years. Excise taxes discouraged employers from contributing more than 100 percent of their current liability in the flush years of the 1990s. “Being forced to contribute when you can least afford it and being kept from contributing when you can afford it is unreasonable,” Gebhardtsbauer said. Also testifying was Steven Kandarian, executive director of the PBGC. He suggested lawmakers consider

ways of moving underfunded DB plans to appropriate target levels over a reasonable period of time. “The key is the 30-year replacement,” Kandarian said, urging lawmakers not to select a replacement rate that provides funding relief only in the short term. If that is the only goal, Kandarian warned, “all we will do is lock in longterm funding problems.” Others who testified before the committee were Henry Eickelberg, a General Dynamics Corp. executive appearing for the American Benefits Council; Christopher O’Flinn, an AT&T vice president and chairman of the ERISA Industry Committee; and Mark Schuler, a captain with U.S. Airways.

EXPERT WITNESSES Gebhardtsbauer’s March 11 appearance before the Senate Finance Committee was just one of several occasions in recent months when the Academy has been asked to provide an expert opinion for congressional hearings. During February and March, Academy Medical Malpractice Subcommittee Chairperson James Hurley testified at three congressional hearings about medical malpractice insurance rates. In appearances before the Senate Appropriations Health and Human Services

Subcommittee, the House Energy and Commerce Health Subcommittee, and a Pennsylvania field hearing of the House Energy and Oversight and Investigations Subcommittee, Hurley had the same message—that costly litigation is the primary force driving up medical malpractice insurance rates. And Jennifer Biggs, chairperson of the Academy’s Mass Torts Subcommittee, submitted written testimony in early March to the Senate Judiciary Committee for its hearing on asbestos litigation. “Foremost, it’s a testimony to the

Academy’s reputation and hard work on these issues,” said Craig Hanna, the Academy’s director of public policy. But the Academy’s busy schedule of Capitol Hill appearances also reflects the fact that a number of the Academy’s key issues have moved into the legislative spotlight. Hanna expects that trend to continue, pointing to Medicare issues, particularly the provision of prescription drugs under Medicare, as one of the next areas where the Academy’s expertise will be in demand.

Calculating for Cash Balance


N THE CURRENT ECONOMY, cash balance plans — pension plans with both defined benefit (DB) and defined contribution (DC) elements — are an increasingly attractive retirement benefit for employers seeking to attract prospective employees. Unlike traditional DB plans, cash balance plans provide a larger benefit to mobile employees. And unlike in a 401(k), employers — not the employee — assume the risk of declining stock prices. Currently, more than 30 percent of Fortune 100 corporations offer cash balance plans for their employees. Unfortunately, the application of existing pension law to cash balance plans is unclear. There is disagreement, for instance, about such basic items as what employees should get out of the plan if they leave it before retirement age. In a new issue brief, What’s Whipsaw? Why Is It a Problem?, the Academy’s Pension Committee explains the complex calculation, called whipsaw, that proponents would use to

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project a current account balance up to normal retirement age and then discount it back to determine the amount received by an employee who quits. The issue brief discusses the various legal, economic, policy, employee retention, and funding problems that the whipsaw calculation presents to both employees and employers. The Pension Committee developed the issue brief under the guidance of Donald Segal, chairperson, and Carolyn Zimmerman, vice chairperson. Other committee members who contributed to the issue brief are Vincent Amoroso, Chester Andrzejewski, Richard Barney, Mark Beilke, Ed Burrows, Ron Gebhardtsbauer, Allen Gorrelick, Dennis Graf, David Kass, Ethan Kra, Lisa Larsen, Christine Mahoney, John Moore, Nadine Orloff, Lawrence Sher, William Sohn, Amy Timmons, James Verlautz, and Lawrence Wilson.

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The Actuarial Update ASSOCIATE EDITORS

Michael Braunstein William Carroll Ronald Gebhardtsbauer Rade Musulin Peter Perkins Adam Reese EDITOR



Becky Horst

American Academy of Actuaries PRESIDENT


Barbara Lautzenheiser SECRETARY-TREASURER


Jan Carstens Jan Lommele John Parks Stephen Preston Robert Rietz Patricia Teufel



OR MANY PEOPLE, death is preferable to public speaking. Sound familiar? Yet, being able to communicate effectively is a life skill—even if it’s not one that everyone is born with. For actuaries, whose work products and opinions are increasingly in the public spotlight, good communication skills are also becoming a professional necessity. If you’d like to improve on your natural abilities in this area (whatever they are), you might want to download a copy of the newest publication from the Academy’s communications department, Winning in the Public Eye, A Communications Guide for Actuaries. Written in a conversational tone and illustrated with clever cartoons, the booklet offers a collection of simple tips to help you face public speaking with greater ease and confidence. Some, like the immeasurable importance of practice, are obvious, but other tips draw on the experience of professional communicators to give you specific methods for sharpening the logic of what you are saying, telegraphing your points, and honing your persuasive techniques. Because the speaker is the main audiovisual aid in any presentation before a live audience, the booklet also provides practical suggestions on ways to improve your physical delivery. They range from offer-

ing good eye contact and using gestures judiciously to hints on subtler elements, such as how to balance your weight while standing before a group for 15 to 20 minutes and the importance of good posture in any presentation. (Did you know that good posture projects confidence and credibility—and that poor posture signals insecurity, or perhaps even evasiveness?) Written for actuaries, the booklet also focuses on ways to communicate complex ideas to a diverse audience, how you can limit your use of technical jargon, and why you should use Power Point slides sparingly. Text-heavy slides, for instance, can force your audience to choose between paying attention to you and paying attention to the slides. As the booklet suggests, this is not a choice you want to offer your audience. The second half of the booklet is devoted to media relations, with a particular emphasis on successful interview techniques. In addition to background information on how the news business works (and why reporters are the way they are), the booklet provides specific tips for preparing for newspaper, periodical, and broadcast interviews. While the guide isn’t meant to be a substitute for professional media training, it is the first step in that direction for those who are appearing before the public more often—or think they might like to.



Professional Service



Noel Card

As we assess the tentative 2003 schedule for the Actuarial Standards Board (ASB) and its operating


committees, it is apparent that there is much to be done. As the board has matured, so has its

Steven Sullivan

workload. Over the years, the number of standards has grown and the effort necessary to review


existing standards has increased proportionately, yet volunteer membership in the ASB’s operating

Anne Richardson

committees has not always kept pace.


The American Academy of Actuaries 1100 Seventeenth Street NW Seventh Floor Washington, DC 20036 Phone 202-223-8196 Fax 202-872-1948 Statements of fact and opinion in this publication, including editorials and letters to the editor, are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy of Actuaries, the editors, or the members of the Academy. ©2003 The American Academy of Actuaries. All rights reserved.


Would you like to serve your profession in general, and your practice area in particular? Volunteer! You can indicate your interest by sending an e-mail to Even if there is no immediate need on a particular committee, it will be helpful to have a list of interested parties. The work is important and stimulating. We hope to hear from you. Bill Koenig is the chairperson of the Actuarial Standards Board.

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Actuarial U P D A T E

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2003 Washington Forum Choosing a New Contribution Rate T HE N EWSMONTHLYOFTHE A MERICAN A CADEMYOF A CTUARIES Speak Up Cat got your tongue?...