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From a Guest Chairperson 8 Guidance for Compliance

3 Inside the ABCD 4 1994-95 Academy • Board of Directors 1

5 Committee Roster 6 Academy Now Online

7 Capitol Views

ENCLOSURES Included with this month's issue of The Actuarial Update are the following : In Search Of ASB Boxscore ASB Glossary CLRS Transcript Order Form


By Sieve Strommen n a world where voice mail and the FAX machine are ubiquitous, yet another tool is poised to transform the way actuaries communicate : the computer bulletin board . The Society of Actuaries, in cooperation with CompuServe, recently launched Actuaries Online, an online service specifically for actuaries . At last there is a way for actuaries to query their colleagues with a question such as, "Does anyone out there know how to reserve for reentry term plans under New York Regulation 147?" and actually get a reply . Such out-of-the-blue questions are frequently posted on a bulletin board within Actuaries Online, and most receive some sort of answer, often from somei one unknown to the person who j posted the question . By bringing together professionals with common problems and solutions, Actuaries Online is transforming the way actuaries communicate and leading to a closer-knit professional community. (For details on the Academy's participation in Actuaries Online, seepage 6.) Of course, for many people the idea of a computer bulletin board conjures up images of adolescent computer geeks bent on mischief (remember Matthew Broderick in "War Games"?) . Such images

carry with them the impression of crude, jerry-rigged, and unreliable technology with little place in the polished professional world . The rapid pace of change has made those images outdated, however . The technology has matured to the point where a service like Actuaries Online is no more difficult to use than a FAX machine, and probably easier than programming a VCR .

Actuaries Online is more than just a bulletin board service . It is a private forum under CompuServe . A CompuServe forum contains several bulletin boards, several file libraries, and a conferencing facility . The Actuaries Online bulletin boards and file libraries are separated by subject area, with separate sections for regulatory issues, the health care debate, pensions, education and examinations, research, actuarial software, and a general section for miscellaneous topics . The bulletin boards see the most traffic, with messages ranging from specific queries to broad discussion topics such as health care and cash-flow testing . There is even evidence that actuaries have a sense of humor : One of the longest-running message threads contains actuarial jokes! The file libraries are for more serious fare. They include early release transcripts of SOA meeting sessions, exposure drafts from various professional and regulatory bodies, examination Continued on page 6

ACADEMY EXECUTIVE SEARCH The American Academy of Actuaries has selected a firm to assist in its search for a new executive director . Heidrick & Struggles, consultants in executive search, will work with the selection task force chaired by Jack Turnqulst In finding a successor to Academy Executive Vice President Jim Murphy, who announced his resignation effective December 31 . The Academy is the public policy and public relations voice of the actuarial profession , representing some 12,000 actuaries in all practice areas. It serves the public and the actuarial profession by establishing . and maintaining actuarial standards of qualification, practice, and conduct . The profession's board for .counseling and discipline is also administered through the Academy . The Academy executive director serves as the actuarial profession's primary spokesperson to public policy makers, the media, and other outside audiences . The individual holding this post is responsible for implementing the policies and procedures established by the board of directors. Excellent communication and management skills are required for the position . The search will consider both actuaries and nonactuaries . Anyone wishing to provide a nomination or application should do so before November 15 . Please direct correspondence to : Mr . Eugene M . Rackley, Heidrick & Struggles, 1301 K Street NW, Suite 500 East, Washington , DC 20005




ACTUARIES President Charles A . Bryan President- Elect Jack M . Turnpuist Vice Presidents John M . Bertko Howard Fluhr David P . Flynn Paul F . Kolkman Charles Barry H . Watson Secretary- Treasurer James R . Swenson Executive Vice President James J . Murphy

EXECUTIVE OFFICE The American Academy of Actuaries 1100 Seventeenth Street, NW 7th Floor Washington, DC 20036 (202) 223-8196 Fax : (202) 872-1948

MEMBERSHIP ADMINISTRATION Woodfield Corporate Center 475 N . Martingale Road Schaumburg, IL 60173-2226 (708) 706-3513

THE ACTUARIAL UPDATE Committee on Publications Chairman E . Toni Mulder Editor E . Toni Mulder Associate Editors William Carroll Stephen A . Meskin Charles Barry H . Watson Managing Editor Jeffrey Speicher Contributing Editor Ken Krehbiel Production Manager Renee Cox

Statements of tact 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.

standards - are also made as uniform as possible Beyond commenting on sump maries or exposure drafts, ti -e are a number of other ways actuaries can participate in e standards - setting process . In cases where a committee has difficulty reaching agreement or where an exposure draft generates numerous conflicting or controWilliams versial comments , a hearing is held to allow interested parties to express their views in person . committee to start the drafting Another highly effective process . method for getting more people Second, as soon as possible, involved has been used by the the drafting committee submits a Casualty Actuarial Society. The summary of the standard to the CAS has sponsored panel discusboard for its approval . A consions by ASB committee members densed version of the summary is while the drafting work on a stanthen published in the "ASB Boxsdard was still in progress . This core" to provide an early warning has fostered maximum participato the profession that this stantion by CAS members by having dard is under development and them sit as a committee of the to invite comments and suggeswhole . tions . Before the ASB adopted Broad participation is not limthe proposal and summary proited to Academy members or even cedures, the profession's first the actuarial profession . When inkling that a standard was under appropriate , experts from other development was when the expofields arc added to the draftin g sure draft arrived in the mail . At committee, and advice and the exposure draft stage, the munication is sought from broad concepts embodied in the sources . standard are often pretty well set, The Government Accounting and all that remains are debates Standards Board has agreed to over wording and punctuation . establish a liaison with the ASB Certainly, the publication of a Pension Committee, and we are condensed summary at an early investigating the possibility of stage, as well as the usual distrisimilar liaisons whit the IRS, the bution of an exposure draft, Pension Benefit Guaranty Corposerves to encourage the profesration, the Treasury Department, sion's participation . and Department of Labor. After reviewing the summary, We arc taking these steps to the board may accept it and ensure that every voice that should instruct the committee to continbe heard in the standards process ue the drafting process, or it may is heard . The ASB is committed to redirect the work to a different providing the maximum participaarea . The hoard has decided that tion by all interested parties and to several proposed standards assuring respect for the due prowould be more appropriately cess that is so necessary to the issued as practice notes and acceptance of standards . referred them to an Academy I view the ASB and its stanpractice council . dards of practice as a unifying Finally, the ASB is attempting force for the actuarial profession to make the form and content of in the United States . By playing standards as uniform as possible . by one set of rules, we strengthen The format is standard ; educaour public identity as a respected tional material, editorial comprofession that speaks with ments (preaching), and examvoice .

Streamlining the Standards Process By P . Adger

n the 1993 Annual Report of the Actuarial Standards Board, I reported that the ASB's goals are to widen the participation i of the profession in the standards setting process and to make the development of standards more efficient. Efficiency is vital . Even though our committees and their chairpersons have shown incredible patience with the process, we have to show more regard for their time, which they donate to the profession . In the past, a committee has worked for a year or more on the drafting of a standard, only to have the board question the need for it, send it back for expansion to other disciplines, or ask that it be recast in a revised format.


Of course, the ASB must always take a thorough and deliberate approach to the development of standards, but we also recognize the need to tighten up our procedures through better administrative practices . Consequently, the board has taken sev-

eral steps to streamline the process. First, to initiate the development of a standard, a formal proposal must now be submitted to the board . This proposal describes the subject of the standard, the practice areas to which it would apply, the major issues it addresses, and, most important, why the standard is needed . In most cases, proposals are generated by an ASB committee, but they may be submitted by anyone . To encourage submissions, a copy of the proposal form will soon he included with the "ASB Boxscore."

If the board decides there is need for the proposed standard, it then gives the go-ahead to a

2 The Actuarial Update - October 1994

ples go into appendices, as do the responses to comments . Certain items of standard contents-such as the disclosure paragraph that is a feature of all

A"illiarns will step down as chairperson of the Actuarial Standards Board at year-end.


ABCD dance for Compliance T here are two ways to measure the success of the Actuarial Board for Counseling and Discipline (ABCD) . One is by recognizing that a large number of disciplinary referrals and investigations suggest an active enforcement of disciplinary codes. The other is by realizing that a small number of disciplinary referrals suggest a high respect for the codes and a conscientious effort to avoid violations by the memberships of the participating organizations . In the real world there is no standard for what is "high" or what is "low," and any movement in one direction or another can not be interpreted as either good or bad . The ABCD works to accomplish both goals-a high level of enforcement and a low level of violation . Initially, the ABCD was .ed as a body for investigating ible code violations, offering counseling where circumstances warranted, and if necessary recommending public disciplinary actions to membership organizations . It became clear from the start that the ABCD was also in position to assist actuaries who sought help to avoid code violations . Some actuaries sought such advice even though it was not within the ABCD's charge, simply because it seemed to be a logical extension of the ABCD's function.

Unfortunately, a request for counseling carried with it a stigma . Counseling was considered a disciplinary action because it was listed as one of the board's disciplinary options . To say that an actuary had been counseled by the ABCD carried with it the connotation that he or she had been singled out for a possible code violation, when in fact that t t son often was scrupulously g to avoid violating the code . he nature of this service was clarified by a 1993 amendment to the Academy bylaws that specifically enabled the ABCD to provide "guidance" to members of

participating organizations at the members' request . While guidance involves giving advice, much like counseling, the advice is given in a friendly rather than an accusatory atmosphere . Records of such guidance requests are kept separately from records of counseling actions so that there can he no question as to the reasons that advice was given .

An actuary who would like guidance in any particular matter may choose to make an informal inquiry or a formal request . Informal inquiries may be made of any ABCD member or staff member. Responses to informal

inquiries should not be construed as an expression of opinion by the ABCD nor are such informal responses binding on the ABCD. Often the informal , off-thecuff reply may not be sufficient . In such cases , a formal written request for guidance should be made . Upon receipt of such a request, the ABCD will review the circumstances , and the relevant standards or standards of professionalism . If necessary, the ABCD will consult with expert actuarial practitioners involved in similar situations for advice and perhaps ask them to initiate a dialogue with the requesting actuary. Continued on page 8

The Update welcomes letters from its readers . Letters for publication

Inside the ABCD By Thomas Griffin J une 1 marked my first day as staff attorney for the Academy and the Actuarial Board for Counseling and Discipline . Before starting at the Academy, I had been informed that my primary responsibilities would entail working with the ABCD . So before my first day at work, I had read the ABCD Rules of Procedure. The procedures and concepts are similar to those I had employed as an advocate, adviser, and reviewer during my 20 years of active-duty U .S . Army service . In my Army career, I had prosecuted or defended many criminal cases in courts-martial, represented soldiers in administrative investigations and discharge hearings, advised investigators and administrative boards, and reviewed numerous records of administrative proceedings for legal sufficiency . However, before I attended the ABCD's June 10 meeting in Wausau, Wisconsin, I had. never witnessed a tribunal actually deliberate . I was most interested to see the process in action . A designated reader had been assigned each of the three recently investigated cases that required specific disposition by the ABCD .

Both the readers and the other members demonstrated a thorough grasp of the facts and issues in each case, no matter how voluminous . Members received a full opportunity to comment on each case . They carefully considered each recently investigated case, as well as some of the more than twenty other open cases before the ABCD . It was obvious to me that each member brought considerable knowledge and expertise to the deliberations . All practice areas within the profession are represented on the board, and its members hold a wide range of professional experience . As might be expected, their views of some cases initially varied . However, in the course of the amicable deliberations, differing views were melded into a well-supported consensus in each case.

should be submitted to "Letters to the Editor," and muss include the writer's name , address, and telephone number.

Letters may be edited for style and space requirements .

I came away from my first ABCD meeting impressed by the professionalism of its members and by the quality of its deliberative process . As I carry out my work on the specific projects the ABCD has assigned me, I am pleased to be part of an organization that upholds so well the ideals of fairness and due process . I appreciate the emphasis on nonpunitive solutions such as guidance and counseling over heavyhanded disciplinary measures . The actuarial profession has every right to be proud of the ABCD . ∎ The Actuarial Update ∎ October 1994 3

1994-95 American Acad emy of Actuaries


Bond of Dipectops

Charles A . Bryan President

Jack M . Turnquist President-Elect

David G . Hi Immediate Past President

John H . Harding Past President

John M Bertka Vice President

Howard Fluhr Vice President

David P . Flynn Vice President

Paul F . Kolkman Vice President

Charles Barry H. Watson Vice President

James P . Swenson Secretary -Treasurer

Robert A . Anker

Larry D. Baber

Aihert J. Beer

Barnet N. Ber'm

William F . Bluhm

Michael E . Callahan

Allan M . Kaatman

Stephen R . Kern Roland E . iGuy) King Howard M . Phillips Brian E. Scott

4 The Actuarial Update ∎ October 1994

Jeff Furnish

Joan E. Herman

Robed F Wilcox

Committee Roster 1994-95 Academy commitnd their respective chairperare set forth below.

Federal Health Committee Alice Rosenblatt

Task Force on Professional Liability Thomas D . Levy

State Health Committee William F . Bluhm

Committee on International Issues Curtis E. Huntington

Subcommittee on State Health Initiatives Allan D . Ford

Committee on Actuarial Public Service Edwin C . Hustead

Committees Under the Supervision of the Board of Directors Executive Committee

NAIC Liaison Subcommittee (To Be Announced)

Charles A . Bryan

Subcommittee on Health Financial Reporting

Review Committee Glen M . Gammill

Committees Under the Supervision of the President and President-Elect Charles A . Bryan, President Jack M . Turnquist, President-Elect President's Advisory Committee Charles A . Bryan Nominating Committee John H . Harding Committee on Planning Jack M . Turnquist

Leonard Koloms Committee on Long-term Care Barley Munson Joint Task Force on Coordination Between the Academy and the Society of Actuaries Julia T . Philips

Life Practice Council Committees Under the Supervision of Vice President Paul F . Kolkman

Litigation Review Committee Jack M . Turnquist

Committee on Life Insurance P . Andrew Ware

Financial Reporting Steering Committee Barbara Snyder

Committee on Life Insurance Financial Reporting James E . Hohmann

Committee on Relations with Accountants

Committee on Risk Classification David J . Christianson

Task Force on Professionalism Course Donald E . Sanning

Committee Under the Supervision of SecretaryTreasurer James R. Swenson

Budget and Finance Committee James R. Swenson

Committees Under the Supervision of Executive Vice President James J . Murphy

Committee on Publications E. Toni Mulder Editorial Advisory Board for Contingencies E. Toni Mulder Advisory Group for Forecast 2000 James J. Murphy

Barbara Snyder Task Force on Fair Value James E . Hohmann Task Force on Insurer Solvency (To Be Announced) Task Force on Reinsurance (To Be Announced)

Casualty Practice Council Committees Under the

Pension Practice Council Committees Under the Supervision of Vice President Howard Fluhr Pension Committee Gregg Richter

Committee on Pension Accounting Lawrence A . Johansen

Supervision of Vice President

Committee on Social Insurance

David P. Flynn

John C . Wilkin

Committee on Property

Joint Program Committee for Enrolled Actuaries Meeting Lawrence J . Sher

and Liability Issues Paul G . O'Connell Committee on Property

and Liability Financial Reporting Patrick J. Grannan Joint Program Committee for Casualty Loss Reserve Seminar Andrew E . Kudera Task Force on Risk-Based Capital Frederick O . Kist

"Realth Practice Council Committees Under the Supervision of Vice President John M. Bertko

Retiring Memhers of the Board of Directors

a Harry I. Garber Past President

Howard J . Bollnick Vice President

Stephen P. Lowe Vice President

Irene K . Bass

Robert W. Gossrow

Larry D. Keys

Paul S. Polapink

Kenneth W . Pcler

R Stephen Radcliffe

Task Force on Retirement Income Security Larry D . Zimpleman

Council on Professionalism Committees Under the Supervision of Vice President Charles Barry H. Watson Committee on Professional Responsibility Kenneth W . Hartwell Committee on Qualifications Robert B . Likins

The Actuarial Update ∎ October 1994 5

I SfYPi9d]YdN /lY°

rB[iySP E, C continued from page I

results, and a collection of actuarial software and spreadsheets . The Academy health care reform work groups' monographs are also included in the file library . Users can easily copy files from the library and then view them on their own computer.

The conferencing facility within the forum allows users to converse simultaneously via their keyboards by sending typed messages back and forth . Users can also find out who is online with them, and if they wish, enter a virtual conference room where all participants can see each others' messages . One can even choose to be a fly on the wall and listen in to a conference in progress without participating . When no conference is in progress, the forum software can announce the names of anyone entering or leaving the forum . A name you recognize can provide an opportunity to strike up a conversation, While Actuaries Online is only a few months old, it already has over 400 users . Well over 2,000 messages have

ACADEMY NOW ONLINE The Academy is an eager participant in the new cybernetic communications system . (See Steve Strommen's article on page 1 .) We view Actuaries Online as an important communications tool that will help members stay informed about the work of the Academy and permit Academy leaders to stay in touch with members' opinions . The Academy is currently using the Actuaries Online service in two ways . First, the Academy Health Practice Council now posts its draft monographs in a private mailbox where members of its work groups can read and comment on each successive version . We anticipate that this will result in swifter peer review for Academy work papers, enabling us to respond to issues in a more timely fashion . In the near future, all preliminary Academy documents will be available online to peer reviewers . Also, the final version of Academy monographs, written statements, and significant correspondence with congressional and regulatory staff will be posted for all Actuaries Online subscribers . We hope our members will take advantage of the ability to scan the Academy's work products in this accessible venue . Of course, members who read Academy reports might have comments or suggestions . By its very nature, a computer forum encourages such feedback, and we welcome it . Academy staff will monitor the cybernetic debate and will respond to the concerns expressed by our members . So to those of you still offline, it's time to log on to the future .

6 The Actuarial Update ∎ October 1994

been posted on the bulletin boards, and many of the files in the file libraries have been downloaded dozens of times . Users span a wide spectrum, including life company actuaries, casualty actuaries, consultants, regulators, students, and even a few nonactuaries . Several actuaries from outside North America are users of the system as well . Surprisingly, some actuaries seem well versed in some of the abbreviations used to avoid typing long canned phrases in bulletin board messages . Acronyms such as BTW (by the way) and IMHO (in my humble opinion) can be confusing to the uninitiated! But their use indicates that there is a core of users who are well acquainted with cyberspace . These pioneering actuaries are using the forum to help point neophytes to other online resources that can be useful in practice . Recently one bulletin hoard message provided instructions for connecting to the public bulletin board of the Federal Reserve Bank of St . Louis, where voluminous files of historical

Comment Actuaries Should Oppose PBGC Plan By David Langer T he Pension Benefit Guaranty Corporation reform plan recently approved by the U .S . House Ways and Means Committee would impose significant new complexity to pension law and regulation . If the legislation is passed, actuaries will find their work more complex, their clients displeased (higher premiums, contributions, and fees), and will witness a further dwindling of defined benefit plans . The legislation grew out of proposals put forth by a Clinton administration interagency task force led by Labor Secretary Robert Reich. He explained the need for them as follows :

economic data are available . Other messages have pointed users to other forums on CompuServe, such as one wh° health care issues are discu by a wide range of participa , and where a spreadsheet is available that purports to provide cost estimates for various proposed health care systems . In the few months since its inception, Actuaries Online has shown signs of becoming the central gathering point for actuaries on the information superhighway. It is transforming the way actuaries communicate, providing access to more and better information, and improving our ability to serve the public .

Strommen is associate directorfinancial planning at the Northwestern Mutual Life Insurance Company, and is a member of the SOA Oversight Group for Actuaries Online . To enroll in Actuaries Online, contact Peggy Grillot at 708-706-3500 or send her an E-mail message at 72662.356@compuserve .com .

"The financial security of thousands of Americans covered by single-employer pension plans is at risk, because their pensions are underfunded . There has been dramatic growth in underfunding . . .expected to exceed $45 billion . . .pos(ing) an unnecessary and unacceptable risk for workers and retirees . And the PBGC, already facing a $2 .7 billion deficit, is further jeopardized by this growing underfunding ." (PBGC recently updated the underfunding to $33 billion and the deficit to $2 .9 billion .) These figures are not what they seem and may mislead Congress and the public . The deficit is the most prominent figure cited by the PBGC to demonstrate the seriousness of its financial problems . It is arrived at by deducting assets from li ities (the usual "true" deficit) then PBGC adds in a puzzli g item, probable net claims, which represents the PBGC's estimate of claims it is likely to have to Continued on page 8



With care reform legislation is off the congressional agenda this year . The death, or hibernation, of health care reform allows Congress to tackle other pending legislation in the remaining weeks of an exhaustive session . Throughout August, reformists had pinned their hopes on a bill being crafted by the self-styled Mainstream Coalition of moderate senators . However, the incremental measure quickly fell prey to attacks from both liberals and conservatives . A central issue : Would incremental insurance market reforms do more harm than good? The mixed response to New York State's experience with community rating and insurance reform was fodder for the arguments of both opponents and proponents of modest reform legislation . The task of the mainstream group was made even more difficult by members' wish

1journ as quickly as possible he campaign trail . House Energy and Commerce Committee Chairman John Dingell (D-Mich .), miffed at the health care industry for its role in killing comprehensive reform, has promised to begin the next session of Congress with a series of hearings on the health insurance industry . Dingell has threatened to examine new regulatory structures to prevent health insurance abuses . "Next year we will be looking at some real reform in the health insurance industry," I)ingell said . In addition to insurance market reforms, Dingell wants to examine a new regulatory structure for the industry to "open up the process" with public hearings on rate increases . The chairman publicly denied that he is seeking vengeance against the industry for their role in the health care debate . "We never do retribus, Dingell said. "We just ask tions ."

ty-rating law . Under the law, which took effect April 1, 1993, all health insurers and HMOs providing coverage in the smallgroup and individual markets are required to charge pure community rates . Proponents of the law generally consider the small group market to be stable and very competitive and have decided to focus their legislative efforts on the individual market, where prices remain high and only one commercial insurer is participating . One measure introduced last year in the state assembly would require all insurers that write health insurance policies in New York to write them in all markets . Another bill would require insurers in the group markets to pay a surcharge if they decline to write insurance in the individual market. The so-called all-markets bill died on the Assembly floor last session, while the surcharge bill remained in the Assembly Insurance Committee. Proponents of those bills are expected to push the measures again during the next Assembly session and may also introduce a bill to require standard benefit packages in New York .

House and Senate conferees considering General Agreement on Tariffs and Trade legislation have developed a tentative package of PBGC reforms to be included in the trade pact's financing provisions . The plan includes the PBGC reform package approved by the House Ways and Means Committee with certain modifications that include: an excise tax exemption for nondeductible contributions to defined benefit and defined contribution plans that cover some of the same employees ; keeping the GAM '83 mortality table through 1999 ; permitting plans to use a special mortality table for disabled participants ; allowing plans to use interest rates within a corridor of 90-105% ; and, allowing employers to amortize all unfunded pre1995 current liabilities over 12 years . The package does not include a provision for pensionCommunity-rating supporters in plan cross testing. Under special New York State are pressing a !I fast-track procedures for trade variety of measures to expand the agreements, the White House will take the recommendations of the state's landmark 1992 communi-

House and Senate conferees, make modifications, and submit a final bill to Congress that is not subject to amendment . The administration is hoping for a vote on the trade pact by the first week of October. In the on-again, off-again world of Superfund reform legislation, chances of passage now look grim-at least temporarily . At present, the House Rules Committee has still not agreed on a rule to govern floor debate, and it remains unclear when Rules will act . The committee's chairman has delayed consideration of the bill because he is trying to attract the support of conservative Democrats for a rule that would limit amendments . Due to severe time constraints, a rule that would allow amendments from Republicans and conservative Democrats who oppose the measure would hamper the bill's chances of passage . A further stumbling block is a provision in the House bill that would require the payment of prevailing DavisBacon union wage rates at Superfund sites . Environmental and industry groups that support Superfund reform oppose the measure arguing that the rules will contribute to a slowdown of cleanups and increase costs . The fate of Superfund reform may hinge on how determined Democrats are to pass at least one piece of environmental legislation into law this year .

1994 CALENDAR Society of Actuaries Annual Meeting October 16-19 American Society of Pension Actuaries ` Annual Meeting October 16-19 Casualty Actuarial Society Annual Meeting November 13-16

The Department of Labor is moving to grant insurance companies protection from the fiduciary requirements of ERISA for certain kinds of company activities . However, the department is not ready to grant a request from the American Council of Life Insurance (ACLI) to exempt all internal transactions involving a general account . ACLI's request arose from the Supreme Court's 1993 Harris decision, which held that funds allocated to a general account under a variable contract are plan assets under ERISA . Under this decision, a broad range of activities involving insurance company general accounts are subject to ERISA's fiduciary standards . ∎ The Actuarial Update ∎ October 1994 7

PBGC BAN , continued from page 6 assume in the near future from plans expected to terminate . While these are not actual claims, they nonetheless are treated as actual liabilities, and increase the true deficit by a sizable average of 82% in 1990-1993, putting a more negative spin on the deficit than is warranted . Another way to look at the deficit is to relate it to assets. The true deficit dropped as a percentage of assets from 75% in 1985 to 15% in 1993, a sharp fall of 80% . The size and trend of the deficit do not then support what the PBGC asks the public to believe, namely, that the $2 .9 billion deficit indicates a "threat to the ability of the PBGC to safeguard pension benefits."

Secretary Reich also holds out as a portent of long-term problems the estimate by the PBGC of $53 billion in current underfunding of all 65,000 active defined benefit plans . The PBGC implies that the $53 billion is a kind of menace, which, of course, it is not . It is misleading to attach a stigma to underfunding arising from sound actuarial methods for budgeting plan costs which include a past service liability . Long term interest rates were also at their lowest, leveraging the underfunding upward . The recent rise in rates has probably wiped out a large part of the $53 billion of underfunding and the

STAY ALERT Academy members who need to be up-to-the-minute on fastbreaking developments in the legislative and regulatory arenas stay informed through Academy Alerts . The Alerts are brief summaries of actions-proposed regulations, legislation, court decisions-that directly affect actuarial practice .

AcademyAlerts focus on four practice areas : property and liability issues, health insurance issues, life insurance issues, and pensions and employee benefits . Subscribers may choose the topic or topics that best suit their needs . To become an Academy Alert subscriber, please complete the enclosed order form . If you are already an Alert subscriber, check the renewal box on the form . Send the order form and a check made out to the American Academy of Actuaries to the attention of Doreen Moaning at the Academy's Washington office .

8 The Actuarial Update ∎ October 1994

$2 .9 billion deficit as well, but this has had no effect on PBGC's pessimistic statements to date . PBGC believes that $12 billion of the $53 billion is attributable to plans of sponsors in "difficult financial circumstances," but to arrive at this doubtful amount one is required to make nearly impossible judgments with respect to a multitude of factors that can vary widely over each year for a variety of reasons . For instance, in 1986 the PBGC estimated a deficit of $8 .3 to $12 .9 billion for 1993, while it actually came to $2.9 billion . There are two additional indicators that the PBGC is in better financial condition than it seems willing to admit . Total net cash flow and change in asset value in

1991-93 more than quadrupled to $3 .3 billion compared to the preceding 3 years and a'so reached a record $1 .6 billi rl 1993 . The other indicator W ratio of assets to the sum of benefits and expenses: At the end of 1985 there were $5 .69 for each dollar of payout, and at the end of 1993 there were $10 .18 per dollar, a hefty 79% jump. Secretary Reich and his task force have not made the case for the adoption of their proposals . Actuaries need to be aware of the inherent wrongness and mischief in the PBGC's proposals and oppose them .

ASCU, continued from page 3

stances affecting their practices or their jobs . It has also provided written support for actuaries who were aware of the limits imposed on their practice but needed evidence supporting their position for their clients or employer Guidance service is avai e to any member of the ABCD's participating organizations . Its use is encouraged. Avoidance of disciplinary situations reflects just as well on the actuarial profession as its ability to cope with them . As for the individual, these services may provide the peace of mind that comes from following the route of "better safe than sorry."

The actuary seeking guidance may request to remain anonymous except to the chairperson of the ABCD and its general counsel . As with other ABCD considerations, efforts to protect the anonymity of an actuary may hamper the ABCD's ability to consider the request in a meaningful manner. Requests may be refused in such instances especially if it appears that such requests are made in order to avoid a disciplinary investigation . Furthermore, if the request for guidance suggests that a material breach of a professional standard has occurred, the ABCD may treat the request as a complaint meriting investigation.

While not considered part of the ABCD's Plan of Operation, this regular column in the Update also provides an opportunity for actuaries to request guidance from the ABCD on an anonymous basis . Such requests will be considered in preparing future columns based on their possible broad interest to the actuarial community . Experience with the guidance process has been good so far . It has put some actuaries at ease about situations that have been bothersome to them . It has helped others know where they might draw the line on circum-

Langer is a consulting actuary in New York City.

This article is one of a series written by the Actuarial Board for Counseling and Discipline to aid actuaries in complying with codes of professional conduct of U.S.based organizations . It is not necessarily based on inquiries or requests for guidance received by the ABCD or on cases before that body although such events may provide a source for the subject matter. These articles are advisory in nature . The applicability o professional standards to spec situations can only be determin : .d from the facts associated with such situations. Actuaries are encouraged to suggest topics for future articles .

October 1994 Actuarial Update