ASPPA Comments to the Academy

June 30, 2006

Committee on Qualifications
American Academy of Actuaries
1100 17th Street, NW
Washington, DC  20036

VIA MESSENGER

Re:    Committee on Qualifications of the American Academy of Actuaries’ Second Draft of the Qualification Standards (including Continuing Education Requirements) for Actuaries Issuing Statements of Actuarial Opinion in the United States

Members of the Committee:

On behalf of the Enrolled Actuary members of the American Society of Pension Professionals & Actuaries, we are writing to express our concerns over the Committee on Qualifications of the American Academy of Actuaries’ Second Draft of the Qualification Standards (including Continuing Education Requirements) for Actuaries Issuing Statements of Actuarial Opinion in the United States (the Proposed Standard). Specifically, we believe that the Proposed Standard inappropriately interferes with the proper jurisdiction of the Joint Board of Enrolled Actuaries (JBEA)¹ which is responsible for determining the continuing education requirements for Enrolled Actuaries. Further, if the Proposed Standard is implemented without the modifications suggested below, we are concerned that the dual continuing education standards that Enrolled Actuaries will consequently be subject to will create confusion and impose unnecessarily burdensome recordkeeping requirements.

Interference with Government Regulation

As you know, Enrolled Actuaries are unique in that they are the only segment of the actuarial profession regulated by the federal government. This provision is pursuant to the Employee Retirement Income Security Act of 1974 (ERISA). Section 3042 of ERISA provides in part:

The Joint Board [for the Enrollment of Actuaries] shall, by regulations, establish reasonable standards and qualifications for persons performing actuarial services with respect to plans to which [ERISA] applies. See 29 USC §1242.

The JBEA regulations define “actuarial services” to mean the “performance of actuarial valuations and preparation of any actuarial reports.” See 20 CFR §901.1. We interpret this broad definition to include those reports related and/or ancillary to the actuarial statement (Schedule B of the Form 5500) required by ERISA. See ERISA Section 103(d). For example, this would apply to an actuarial report given to a client accompanying the preparation of a Schedule B, a fairly standard practice as noted earlier.

This more expansive view of actuarial services under the jurisdiction of the JBEA is further confirmed in the section of the JBEA regulations addressing “Standards of Performance of Actuarial Services.” This section provides in part that:

An [Enrolled Actuary] shall provide to the plan administrator upon appropriate request, supplemental advice or explanation relative to any report signed or certified by such enrolled actuary (emphasis added). See 20 CFR §901.20(c).

The section on Standards of Performance of Actuarial Services goes on to provide with respect to assumptions, calculations and recommendations that:

The [Enrolled Actuary] shall exercise due care, skill, prudence, and diligence to ensure that:

1. The actuarial assumptions are reasonable in the aggregate, and the actuarial cost method and the actuarial method of valuation of assets are appropriate,
2. The calculations are accurately carried out, and
3. The report, any recommendations to the plan administrator and any supplemental advice or explanation relative to the report reflect the results of the calculations

The JBEA regulations make clear that the jurisdiction of the JBEA over the practice of Enrolled Actuaries goes beyond just government-mandated forms, but rather applies to all actuarial services in connection with a qualified retirement plan governed by ERISA.

Currently, the JBEA requires Enrolled Actuaries to complete 36 hours of continuing education over a three-year period, 18 hours of which must be on core subject matters. The Proposed Standard generally requires actuaries issuing statements of actuarial opinion to complete 30 hours per year. Regarding Enrolled Actuaries, the Proposed Standard states:

Enrolled Actuaries who issue Statements of Actuarial Opinion [SAOs] other than Schedule B (Form 5500) certification and other government-required forms must supplement the Joint Board’s continuing education requirement with the continuing education requirements of the [Proposed] Standards.² Each hour that satisfies the Joint Board’s continuing education requirements can also be counted as an hour of continuing education for purposes of these [Proposed] Standards.

Appendix 1 of the Proposed Standard includes a listing of actuarial services that are examples of SAOs. Relating to pension plans, the examples include tax opinions, cash flow testing, actuarial audits (presumably including an audit by the Internal Revenue Service), supporting reports, a pension plan cost determination, related FASB calculations, etc.  Enrolled Actuaries typically provide these kinds of services as well as others in connection with a qualified retirement plan. That is why, as referenced in the JBEA regulations noted above, the performance of these actuarial services are subject to the jurisdiction of the JBEA.

As a consequence, the Proposed Standard’s new continuing education requirements for actuaries issuing SAOs would in effect supersede the continuing education requirements imposed by the JBEA on Enrolled Actuaries performing the same actuarial services. The actuarial services provided by Enrolled Actuaries are critically relied upon by plan sponsors and participants. For that reason, Congress vested the JBEA with oversight over the practice of Enrolled Actuaries, including the amount and type of continuing education that should be required.

We strongly believe the Proposed Standard’s continuing education requirement, as applied to the actuarial services typically performed by Enrolled Actuaries on qualified plans, inappropriately interferes with the jurisdiction of the JBEA to decide the proper level of continuing education required for Enrolled Actuaries. We believe this jurisdictional interference is particularly inappropriate given that the JBEA recently announced (in 2004) that is reviewing its current regulations, including the amount of continuing education that should be required, and both the Academy and ASPPA have commented and provided assistance on this project. If continuing education requirements for Enrolled Actuaries are increased, and we would not necessarily object to such an increase if reasonable, it should only be done as part of the JBEA regulatory process currently underway.

Recordkeeping Burden Associated with Multiple Standards

Most Enrolled Actuaries perform services that would seem to fit the Proposed Standard of an SAO and thus would be subject to the Proposed Standard’s continuing education requirements. If the current continuing education requirements in the Proposed Standard are finalized without modification, Enrolled Actuaries will potentially be subject to three sets of continuing education requirements: one by the JBEA, another to satisfy the Proposed Standard and a third if the actuarial organization in which they are a member has a different requirement than the other two. Theoretically, actuarial firms would have to keep track of up to three different continuing education requirements to prevent one of their actuaries from accidentally running afoul of the rules. The North American Actuarial Council has added the issue of non-standardized continuing education requirement to the agenda of its next meeting, in October. At a minimum, no decision on finalizing the Proposed Standard should be made until that discussion occurs. There would also likely be uncertainty over the key issue as to whether any specific work of an Enrolled Actuary constitutes an SAO, thus triggering the Proposed Standard’s continuing education requirements. Actuarial firms would be forced to monitor the types of actuarial services to ensure compliance, and the lack of clarity over what constitutes an SAO in the qualified plan area would lead to much confusion.

We also note that the Proposed Standard defines a credit hour to be 60 minutes whereas the JBEA defines it as 50 minutes. See 20 CFR §901.10(h)(2). This inconsistency will further create confusion and additional record keeping burdens.

We do recognize that the Proposed Standard provides that the additional continuing education required by Enrolled Actuaries could be satisfied by self study. However, there is still a recordkeeping cost associated with the Proposed Standard’s requirements, including the cost to the actuarial firm for monitoring compliance.³ More importantly, there is a much greater cost that could be borne by an actuarial firm for noncompliance. In litigation, a firm actuary working solely on qualified plans would now have to demonstrate compliance with the Proposed Standard’s requirement to establish their qualifications, whereas presently an Enrolled Actuary merely needs to show that he or she is currently enrolled by the federal government. This potential liability to an actuarial firm should not be underestimated. Not only are these multiple qualification standards confusing to Enrolled Actuaries and their employers, but they would be extremely confusing to plan sponsors and participants relying on these actuaries.

Ultimately, we simply do not believe there is any public policy justification to supplement the government-mandated continuing education requirements of Enrolled Actuaries performing actuarial services in connection with a qualified retirement plan. There is no evidence of rampant unqualified practice by Enrolled Actuaries. To the contrary, government regulation since ERISA has improved such practice.

Exemption for Service Typically Provided by Enrolled Actuaries

For the aforementioned reasons, ASPPA strongly believes that all actuarial services performed by an Enrolled Actuary in connection with a qualified retirement plan should be exempted and not be considered SAOs subject to the Proposed Standard, since the performance of such services by Enrolled Actuaries is under the jurisdiction of the JBEA pursuant to ERISA. ⁴ As a result, Enrolled Actuaries who only perform actuarial services in connection with qualified retirement plans would not be subject to the Proposed Standard’s additional requirements. ⁵

Other Actuarial Services and Self Study

By contrast, we do agree that Enrolled Actuaries who perform other actuarial services not connected with a qualified retirement plan that constitute SAOs should be subject to the Proposed Standard’s requirements. Further, we do support the concept of meeting the Proposed Standard’s additional continuing education requirements through self study. However, we would suggest that the Committee consider some type of limit on the number of continuing education hours achieved from self study that is self-validated versus self study that can be objectively verified by other means, such as a short exam. We note that the JBEA currently requires continuing education through self study to be objectively verified in such a manner.

* * *

If you would like to discuss any of this further or have any questions, please do not hesitate to contact us.

Sincerely,

/s/	/s/	/s/
Sarah E. Simoneaux, CPC	Chris L. Stroud, MSPA	Brian H. Graff, APM
President	President-Elect	Executive Director/CEO

cc:  Members of the Academy Board of Directors
      ASPPA’s Actuarial Membership