Building Trust: Proactive Oversight of Actuarial Services
- Ellen
- May 13
- 3 min read
Navigating the complexities of defined benefit and post-retirement medical plans requires a unique blend of skills, especially as these programs become rarer in today’s job market. A skilled consulting actuary offers more than just technical calculations—they provide insight into industry trends and advice to guide fiduciaries in making informed decisions. Selecting an actuary isn’t just a business decision; it’s an investment in financial stability, regulatory compliance, and the long-term well-being of plan participants.
Good fiduciary oversight doesn’t end with selecting an actuary. It requires ongoing evaluation and accountability. A periodic review of your actuary’s performance fulfills a fiduciary’s monitoring responsibility, supports informed decision-making, and upholds the integrity of retirement benefit plans.
Independent actuarial audits enable fiduciaries to confirm their plans’ financial health, pinpoint areas for improvement, and bolster confidence in the recommendations of their consulting actuary.
The Value of a Good Consulting Actuary
Actuaries bring a wealth of expertise to support the effective funding and administration of pension plans. They excel at forecasting participant behavior and developing intricate models to assess future benefit obligations and funding needs, using their expertise to inform key decisions that affect plan participants, sponsors, and beneficiaries alike.
The value of a good consulting actuary goes beyond numbers. It lies in their ability to provide clarity in an ever-evolving financial landscape. The right partnership ensures that plans remain financially viable and compliant in the years ahead.
Once engaged, consulting actuaries dedicate themselves to understanding their clients—building rapport and delving into business objectives, workforce needs, industry trends, and specific challenges—to provide tailored and actionable advice. Many plan sponsors rely heavily on their actuary’s insights, especially since finance and benefits teams can experience turnover much more frequently than plans typically change actuaries. Therefore, fiduciaries need to partner with actuaries who can adapt to the ever-changing landscape professionally and precisely.
Past Performance Does Not Guarantee Future Results
Fiduciary responsibility does not end with selecting service providers. It extends to consistent monitoring and oversight of the services provided. It’s easy to fall into the trap of complacency when it comes to monitoring a plan’s actuary, given the significant investment of time that goes into selecting a new actuary and transitioning actuarial services. Fiduciaries might rely on the historical performance of actuaries they like, trusting that future work will replicate past successes. However, evolving regulatory requirements, economic conditions, and industry trends introduce the potential for mistakes or omissions to go undiscovered despite the actuary’s best intentions and quality control protocols.
Relying solely on a trusted reputation can expose plans, jeopardizing their financial integrity and effective risk management.
Actuarial Audits: An Effective Monitoring Tool for Fiduciaries
Most fiduciaries lack the technical expertise needed to fully assess the accuracy of actuarial calculations and compliance with generally accepted actuarial standards. Engaging an independent actuary to review or “audit” the work of your plan’s actuary allows fiduciaries to objectively evaluate the quality of the actuarial services without any bias stemming from a positive, long-standing working relationship with their actuary.
Key areas for assessment include:
The precision of calculations and projections,
The clarity of communications,
The suitability of underlying assumptions and methods,
Adherence to regulatory standards and the Actuarial Standards of Practice
The reasonableness of recommendations, and
The alignment of fees and services with contract terms and current market practices.
An independent actuarial audit isn’t about looking for “gotchas” or trying to replace an actuarial consultant who is delivering quality, thoughtful work. The auditing actuary has one job – to validate for plan fiduciaries that the plan’s actuary is presenting an accurate picture of its financial condition and offering actuarially sound opinions. If significant concerns arise from this review, fiduciaries have the information they need to take timely corrective actions.
Ensuring Fiduciary Excellence
Monitoring actuarial performance is not about finding faults. It’s about maintaining excellence.
Conducting an independent actuarial audit ensures that benefit plans remain compliant, accurate, and aligned with best practices. By embracing independent reviews, fiduciaries demonstrate their commitment to due diligence, protecting benefit plans from hidden risks and securing the financial future of participants. In today’s litigious landscape, proactive oversight of actuarial services is more than just a best practice; it’s a fiduciary imperative.
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