The power of we: using shared actuarial services to implement GASB 45: the Actuarial Shared Services Project provides Texas local government with access to hihg-quality low-cost actuarial valuations, without the need for writing individual RFPs.

• Author: Scott, Robert B. "Bob"
• Position: Best Practices

When it comes to Governmental Accounting Standards Board (GASB) Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions, Texas is best known nationally for H.B. 2365, a controversial state law that exempts normally GAAP-abiding Texas governments from having to meet the requirements of GASB Statement No. 45. Perhaps not as well known is the fact that the vast majority of Texas governments appear to be quietly working toward implementing the standard in spite of the out provided by state law.

A prime example of these efforts is the Actuarial Shared Services Project, initiated in 2006 by the North Central Texas Council of Governments (NCTCOG), a voluntary association of local governments established by the state. The NCTCOG is charged with regional planning and with improving cooperation among governments. The purpose of this project is to provide all local governments within the state with access to high-quality, low-cost actuarial valuations, without each government having to write its own request for proposals (RFP) and go through its own selection process.

LEARNING TO SPELL "ACTUARY"

Most governments in Texas participate in statewide pension plan arrangements and have historically had little reason to use actuarial services individually Further complicating the issue, the actuarial profession does not require any separate certification for health-care valuations, and many actuaries with only private-sector pension or risk and insurance experience are viewing GASB Statement No. 45 as a new growth area. This lack of experience--combined with the greater uncertainties that are inherent in a health-care valuation, as compared with pension valuations--has produced wildly different results, both between entities and in valuations of the same entity done by different actuaries. It became obvious that a better-researched and more demanding RFP could be written, and actuarial costs could be reduced, if multiple governments were involved. As a result, the authors discussed the shared services concept with a number of finance officers in the state and determined that 40 to 50 governments might be interested.

Three actuarial firms in the Dallas area were interviewed regarding the concept and the best way to approach the RFP, including pricing drivers such as covered lives and health-plan options. In these interviews, it became evident that the winning actuary needed to have extensive experience with both GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. That's because techniques for those valuations mirror those for GASB Statement No. 45, and an actuary performing these types of valuations would already have software that could be adapted quickly to a GASB Statement No. 45 valuation. The actuary would also be familiar with the unique aspects of government procurement and contracts such as open records requirements and additional insurance or indemnifications requirements. Health-care experience was also deemed critical because of the volatility of health-care costs and the extreme complexities of health-care plans.

LEVELING THE PLAYING FIELD

The size of the state, which has thousands of...