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Updated Scorecard Information
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We use a risk “scorecard” to summarize and quantify the current risk profile of the state’s pension systems. The scorecard also allows us to
demonstrate how certain pension proposals affect the risk profile.
To generate the scorecard, we prepare a Risk Assessment. Risk Assessments use participant data, plan provisions, asset values, and assumptions
about participant behavior, legislative practices in the areas of funding and benefit improvements, and future economic conditions. Every year, we collect new
information about each of these to update the current risk profile of the pension systems. We’ve updated the results for the current year based
on the following.
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Participant Data: We updated member data as of June 30, 2011. This includes updated ages, salaries, new members,
and which members left active membership.
◊ Effect: This did not materially change the results in any particular direction.
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Asset Values: We updated asset values through June 30, 2012. Asset returns for fiscal year 2012 were 1.4 percent.
◊ Effect: This worsened all scorecard measures since the systems have lower asset values than expected since
the last Risk Assessment. Unlike actuarial valuations, which use asset valuation methods to smooth volatility from year to year, risk
assessments use the market value of assets to determine when the plans may run out of money in the future (i.e., pay-go risk). In other
words, we immediately recognize the full gain/loss on investments when measuring pay-go risk in this risk assessment.
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Plan Provisions: We updated projected benefits for future members of PERS, TRS, and SERS hired on or after
May 1, 2013, to reflect lower subsidized early retirement benefits.
◊ Effect: This improved all scorecard measures because the affected systems become relatively more affordable
in the future and have a lower chance of pay-go.
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Economic Assumptions: We changed economic assumptions according to adoptions by the Pension Funding Council and the LEOFF Plan 2 Retirement
Board, as well as statutory changes by the Legislature. We reduced the investment return, general salary increase, inflation, and system growth assumptions used
to project future system liabilities. We also reduced the long-term assumed rate of return on assets for projecting future asset levels. Lastly, we replaced
expected GF-S revenues with actual (lower) revenues where known.
◊ Effect: Each assumption change introduced its own impact to the scorecard. For example, the lower salary increase assumption improved
scorecard measures because it reduced required contributions, lowered expected future benefits, and improved funded status in the future. Lower investment return
assumptions increase funding costs and weaken affordability scores in the shorter run, but decrease funding costs and improve affordability in the long run. In
general, risk measures improved due to the economic assumption changes.
After we updated the risk assessment model for all these changes, overall, we found affordability risk worsened, but pay-go risks improved since our last assessment.
The old and new scorecards are shown below. We will continue to use the new scorecard as the baseline for all risk analysis until it is updated after the 2012 Actuarial Valuation.
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Annually, we will continue to make these types of updates to the risk assessment model. Every six years, consistent with the demographic experience study, we will update assumptions
about new entrants, participant behavior, legislative practices, and future economic scenarios. Occasionally, we will update portions of the risk assessment off of these cycles if
deemed necessary.
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About this Report
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A 2009 OSA report showed that the health of Washington’s retirement systems had deteriorated over the past ten years. The Executive Committee of the
Select Committee on Pension Policy then set
a strategic goal of managing the future health of the pension systems, and
adopted the state actuary's recommendation to conduct a system-wide risk assessment.
Taking advantage of recent advances in actuarial practice and technology,
OSA focused on the identification, quantification, and
expanded analysis of financial risk within
the pension systems. We created a new risk model to project future outcomes and the influence of policy and event changes on the
future health and soundness of the retirement systems.
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Report PDF
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2010 Risk Assessment
[10mb]
Report may take 5-10 minutes to load, individual sections
are below.
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About this Report / Executive Summary
[462kb]
Main Report Body
[4mb]
Appendixes
[2mb]
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Please note that PDF files are best viewed using Adobe Reader’s latest version. Click on the icon below to
access free updates.
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Frequently Asked Risk Assessment Questions
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Back to Top
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What is the OSA Risk Assessment?
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The Office of the State Actuary (OSA) is studying financial risks within the Washington State retirement systems. The study uses recent advances
in technology and in the actuarial profession to expand traditional pension analysis. OSA performed similar work when it conducted a 2009 solvency
study of Washington's
Guaranteed Education Tuition (GET) Program.
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What's new about this study?
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OSA is building an actuarial model that can randomly generate thousands of fifty-year projections. This allows OSA to quantify the likelihood
and magnitude of various events occurring in the future. The result is more complete and forward-looking information about potential retirement
system risks. Policy makers can use results from the analysis to inform their debates about how to best manage these risks in the future.
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How will the analysis be used?
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Results from the model will be extensive and will provide detailed information about the full range of possible future outcomes, including how
economic variables behave and how they are correlated. A report will document OSA's analysis as well as its independent assessment of risks
within the Washington State retirement systems.
The model will also allow OSA to introduce hypothetical policy changes to the retirement systems. We can see how future outcomes could change
and how the likelihood and magnitude of future risks are affected by changes in policies. In that sense, the model can serve as a "laboratory"
for objectively evaluating the consequences of future actions or events.
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When will the risk assessment be complete?
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OSA's goal is to release its report during August of the 2010 Interim. This will give policy makers an opportunity to develop their legislative
strategies prior to the 2011 Session. However, OSA expects the risk assessment process to be ongoing. OSA's 2010 project is one step that will
provide new tools and improve how OSA is able to consult with its various clients.
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Who will use the results of this analysis?
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Any of OSA's clients could benefit from newly developed tools and expanded actuarial analysis. OSA's clients include the Governor's Office,
both houses and caucuses of the Legislature, executive branch agencies such as the Department of Retirement Systems, the Washington State
Investment Board, and the Office of Financial Management, the Pension Funding Council and its work group, the Select Committee on Pension Policy,
and the Law Enforcement Officers’ and Fire Fighters’ Plan 2 Retirement Board.
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Why is the study being done now?
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The risk assessment is a proactive undertaking by OSA. OSA believes that these extraordinary financial times call for extraordinary measures.
OSA's goal is to generate more complete information in a manner that is objective and far-reaching. We hope this new information will better
assist our clients as they balance the many interests at play in the public pension arena.
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