S.F. 806 (Betzold) modifies the manner in which the consulting actuary who performs actuarial valuations and related actuarial work for the various statewide and major local Minnesota retirement plans is selected, retained, and compensated by transferring those functions from the Legislative Commission on Pensions and Retirement to the seven applicable retirement systems, acting jointly. To account for the transfer of the actuarial contract function, the appropriation to the Legislative Coordinating Commission for allocation to the Legislative Commission on Pensions and Retirement is reduced by $152,000 for Fiscal Year 2005.

The proposed legislation provides a mechanism for ensuring the continuation of the provision of actuarial services after June 30, 2004. The current contract between the Legislative Commission on Pensions and Retirement and Milliman USA, a consulting actuarial firm, expires on June 30, 2004, unless the Commission and the actuarial firm resolved outstanding differences over the issues of a proposed limitation on Milliman USA’s liability for errors and omissions in its actuarial work, a proposed mandatory use of dispute arbitration rather than court litigation, and a proposed limitation on reliance by third parties on its actuarial work. Milliman USA generally sought a $10 million limit on its liability for its errors and omissions, sought to substitute arbitration for litigation to resolve disputes between the Commission and Milliman USA, and sought to exclude most users of actuarial work from any legal reliance on Milliman USA’s actuarial work.

Additionally, the Commission has a related Fiscal Year 2004-Fiscal Year 2005 budget problem, caused by reductions in its legislative appropriations, increasing actuarial consulting services costs, and actuarial services (i.e. experience studies) that recur on a basis longer than a biennium.

S.F. 806 (Betzold) resolves both the actuarial services problem and the Commission budgetary problem. Because Milliman USA was ready to moderate its liability limitations and related demands if its actuarial work was largely or wholly replicated by other actuarial consultants and because the retirement systems have the capacity to structure the total actuarial work with the individual actuarial consultants to accomplish that, transferring the "official" actuarial functions to the joint retirement systems will allow for that restructuring. The retirement system administrators also have more time and have fewer availability problems than Pension Commission members to undertake the periodic competitive bidding process.

S.F. 806 (Betzold) also resolves the budget problem of the Legislative Commission on Pensions and Retirement by eliminating the overly complex process of advancing a State General Fund appropriation, currently inadequate, to the Commission for actuarial services and then requiring the Commission to recoup those actuarial costs from the various retirement plans for the benefit of the State General Fund. It also solves the problem of budgeting for the additional expense of quadrennial experience studies by having the retirement plans bear the actuarial cost directly.

S.F. 806 (Betzold) is an appropriate modification in the manner in which actuarial services are arranged because the proposed legislation:

1. retains a single consulting actuary for the provision of "official" actuarial valuations and related studies;
2. retains involvement by the Legislative Commission on Pensions and Retirement in the actuarial consultant selection process by requiring the Commission to ratify the actuarial consultant selection;
3. allows the retirement plans to coordinate the work product of the "official" consulting actuary with the work of their current supplemental independent consulting actuaries to reduce or eliminate the need for actuarial services contract liability limitation and related provisions;
4. streamlines the process for paying for actuarial services by the various retirement plans by eliminating the advance of a General Fund appropriation and its subsequent reimbursement by the retirement plans;
5. allows more consistent and more adequate planning and budgeting for quadrennial experience studies and other infrequently recurring actuarial work; and
6. resolves the current budget problems of the Legislative Commission on Pensions and Retirement, since the Commission cannot have all of the actuarial work as required by current statutes performed within the Commission’s current actuarial services budget.