Actuarial Services Contract Bidding Process

The current contract between the actuarial consulting firm of Milliman USA (formerly Milliman & Robertson, Inc.) of Brookfield (suburban Milwaukee), Wisconsin and the Commission terminates as of June 30, 2002. Under Minnesota Statutes, Sections 3.85, Subdivision 11, Paragraph (f), the actuarial services contract must be competitively rebid periodically. A rebidding of the contract is needed for the actuarial services contract period beginning July 1, 2002. The Commission staff is requesting that the Commission begin the process as early as possible in order to complete the process before July 1, 2002.

Minnesota Statutes, Section 3.85, Subdivision 11, requires the Legislative Commission on Pensions and Retirement to contract with an established actuarial consulting firm for the following actuarial services:

1. to conduct annual actuarial valuations for the current 13 statewide and major local Minnesota public pension plan and the 42 current local police or paid fire consolidation accounts in PERA-P&F;
2. to conduct annual experience data collection and processing and to produce a quadrennial experience study (due next in 2005) for the three largest statewide pension plans;
3. to prepare an annual report to the Legislature summarizing the most recent actuarial valuation results; and
4. to perform cost analyses of benefit or funding change proposals.

The provision was enacted in 1984 (Laws 1984, Chapter 564, Sections 1 and 2) and was last amended substantively in 1991 (Laws 1991, Chapter 269, Article 3.)

The current actuarial services contract was approved by the Commission in June 1998 for an initial two-year period, and was extended for two additional years, as provided for in Minnesota Statutes, Section 3.85, Subdivision 11, Paragraph (f). The actuarial services contract is subject to competitive bidding procedures as specified by the Commission.

The current actuarial services contract with Milliman USA of Brookfield, Wisconsin, expires with the completion of any actuarial projects assigned by or on behalf of the Commission before June 30, 2002.

The steps in the process for competitive bidding of the actuarial service contract used by the Commission in the past, and the Commission staff recommendations for the Commission to initiate the upcoming bidding process, are as follows:

1. Appointment of Actuarial Services Subcommittee. The Commission Chair should appoint a subcommittee of Commission members for purposes of the issuance of a request for proposals, the consideration of proposals received, the selection and interviewing of finalists, the recommendation of a consulting actuarial firm, and the negotiation of the actuarial services contract. The workload of the subcommittee will be somewhat considerable. The subcommittee should be made up of at least four members (at least two from each body) who have the greatest potential time availability to complete the task and/or who have the greatest interest in the topic.

2. Formulation of the Request For Proposal (RFP). The Request For Proposal initiates the contract bidding process. The RFP should summarize the actuarial services required to be provided to the Commission and the timeframe for their provision, the minimum requirements an actuarial firm must meet in order to be eligible, the minimum content requirements of a proposal, and the deadline for submission of a proposal. If the Commission is satisfied with the current type and scope of the actuarial services provided by the Commission-retained actuary, an RFP substantially identical to the RFP issued during the 1998 contract bidding process will be issued. If the Commission desires actuarial services to be provided in the future by the Commission-retained actuary that are different than those provided currently, those changes or modifications should be reflected in the RFP. Attached is a copy of a draft RFP prepared by the Commission staff, adapted from the RFP issued on behalf of the Commission during the 1998 contract bidding process. The RFP formulation or reformulation should occur at a meeting of the subcommittee. The Commission staff will circulate the draft RFP among the various statewide and major local pension plan administrators in advance of any subcommittee meeting, and request those administrators to provide their comments in advance of any subcommittee meeting.

3. Issuance of the RFP. To obtain proposals from eligible and capable actuarial firms, the Commission should issue the RFP and circulate it to the various actuarial firms located in the Twin Cities and elsewhere, including the current actuarial firm providing actuarial services to the Commission, Milliman USA. In 1984, the RFP was provided to 17 actuarial firms. In 1991, the RFP was provided to 27 actuarial firms. In 1995, the RFP was provided to 34 actuarial firms. In 1998, the RFP was provided to 36 actuarial firms. The RFP should be issued in March 2002 in order to allow adequate time for the preparation of bids by potential bidders and consideration of responses by the Commission. The issuance of the actual RFP document would be handled by the Commission staff. In addition to sending the RFP to various local actuarial firms and to actuarial firms which do business in more than one state or nationally, the Commission staff will publish the RFP in the State Register and will post the RFP on the Internet at the Commission’s website.

4. Informational Session for Bidders. To handle questions from the various potential bidders on the RFP and on the nature of the services to be provided, an informational session for potential bidders should be held with a representative or representatives of the Commission. In 1991, 1995, and 1998, the Commission staff conducted the session, but the Commission representatives this time could be either the Commission officers, the special Actuarial Services Subcommittee, the Commission staff, or a combination. The meeting is intended to reduce or eliminate the number of less formal contacts that could be anticipated otherwise to be made by potential bidders and to increase the probability that complete and consistent information is provided to all potential bidders. If past occurrences hold true, the informational session tends to focus on technical items (i.e., the form and timing of new data provision, or the form of the governing plan documents) or on procedural items (i.e., the timing for the selection process, the length and nature of interviews, or the manner of contacting finalists). The informational session for bidders should occur approximately one week after the issuance of the RFP to keep the process as contained and as prompt as possible.

5. Proposal Due Date. To complete the process of selecting an actuarial firm to provide actuarial services to the Commission by June 30, 2002, a due date should be established for the submission of all proposals. The due date should be set three or four weeks after the issuance of the RFP.

6. Initial Evaluation of Proposals. The proposals to provide actuarial services to the Commission should be evaluated by the subcommittee to select potential finalists for an interview. The evaluation of potential finalists should be made on criteria that are as consistent and as objective as possible. The initial evaluation would be a summary of the proposals submitted by all bidders, organized around the contents of the RFP. The Commission staff prepared the proposal summaries during the 1991, 1995, and 1998 bidding processes.

7. Review of Proposals. Using the summaries of the proposals and the actual proposal documents, the Actuarial Services Subcommittee should review the proposals in a single session. The subcommittee review session, like all legislative committee and commission meetings, would be an open public meeting.

8. Selection of Finalists for Interviews. After reviewing the proposals, the Actuarial Services Subcommittee should attempt to reduce the bidders to a manageable number of finalists for subsequent in-person interviews. Based on the criteria of each subcommittee member, the subcommittee should identify the finalists to be scheduled for interviews. In 1991, six actuarial firms out of the 27 firms that were sent a RFP actually submitted timely proposals and four firms were selected to be interviewed. In 1995, two actuarial firms out of the 34 actuarial firms that were sent a RFP actually submitted timely proposals and both firms were selected to be interviewed. In 1998, only Milliman & Robertson, Inc., submitted a bid. The interviews should be conducted by the subcommittee in an open public meeting. In 1991 and 1995, the subcommittee requested that bidders not attend interviews with their competitors, but could not enforce that request. In 1998, with only one bidder, the issue did not arise.

9. Finalist Interviews. The Actuarial Services Subcommittee should conduct the interviews of the finalists. The interviews should be conducted in the course of a single subcommittee meeting, if possible. In 1991 and 1995, the interviews were scheduled 45 minutes apart. In 1998, with the incumbent actuarial consultant the sole bidder, the Commission did not conduct a formal interview. The Commission staff could prepare some sample questions for the finalists, as it did in 1991 and 1995. In 1991 and 1995, the Commission staff prepared some standardized general questions for all firms and some specific questions for each firm, directed at potential weaknesses or problems identified by the Commission staff in the submitted proposals. The general questions were provided in writing to all finalist actuarial firms at the start of each interview.

10. Recommendation of Consulting Actuarial Firm. After the finalist interviews, and after any follow-up interviews that may be necessary or after the provision of any additional information clarification that may be necessary, the Actuarial Services Subcommittee should select the consulting actuarial firm that it will recommend to the Commission for retention.

11. Selection of Actuarial Firm. Based on the recommendation of the selection subcommittee, the Commission should formally approve the selection of the actuarial firm. This selection should occur before June 30, 2002, with the contract effective from the signing date or July 1, 2002, whichever is later, for a period of up to two years as provided under law.

12. Negotiation of Actuarial Services Contract. The terms of a contract for the provision of actuarial services to the Commission, including the compensation for these services based on the submitted proposals, should be negotiated with the selected actuarial firm. The Commission chair or the Commission selection subcommittee should be delegated the task of negotiating the contract. The Commission potentially will achieve the most competitive contract fee arrangement if it negotiates the fees for the entire contract period, including any potential extension years, at the same time.

The summary of the RFP process, above, assumes a relatively tight timetable to allow for the selection of a consulting actuarial firm by June 30, 2002. The Commission staff proposal for a compact timetable, with specific dates, is as follows:

Date                         Action

March 11, 2002       Establishment of Actuarial Services Subcommittee

March 15, 2002       Formulation of the Request For Proposal

March 22, 2002       Issuance of Request for Proposal

April 3, 2002            Informational Session for Bidders

April 17, 2002          Postmark Deadline for Proposals

April 22-30, 2002     Initial Evaluation of Proposals

May 10, 2002           Subcommittee Selection of Finalists

May 20-24, 2002      In-Person Presentations to Subcommittee by Finalists

May 27, 2002           Subcommittee Recommendation of Consulting Actuarial Firm

June 2002                 Commission Consideration of Subcommittee Recommendation

June 2002                 Negotiation and Signing of the Actuarial Services Contract

I request that the Commission chair, in consultation with the other Commission officers, establish an Actuarial Services Subcommittee and thus begin the process of selecting the consulting actuary to be retained by the Commission for the period of July 1, 2002 – June 30, 2004.

If you have any questions about the competitive bidding process outlined in this memorandum, please contact me.