Firm Helps Public DB Sponsors Manage Market Volatility Effects

According to the announcement, with CMC’s method for interest rate smoothing, it is possible to:  

• Increase contributions during good economic times, 
• Reduce contributions during bad economic times, 
• Retain actuarial gains to offset losses, 
• Maintain actuarial soundness, and 
• Comply with Governmental Accounting Standards Board (GASB) and actuarial standards of practice. 

The firm explained that interest-rate smoothing works by establishing a discount rate and long-term horizon and then smoothing the interest rate used to develop the liabilities and contribution models. The smoothed valuation interest rate is the rate needed over the look-forward period so employers will have the earned discount rate over the time horizon.   

“It is a reality that public sector employers have little will or ability to increase contributions in poor economic times – like the period we’re experiencing now. Our method enables them to contribute more in good times and less in bad times. It also improves prospects for a bond rating, since they have a comprehensive plan to address funding needs,” said Ed Macdonald, president of Cavanaugh Macdonald Consulting, in the announcement.