Decrement Rate Assumptions – How are they Determined?

Key Benefit ConceptsActuarial, Services

How are they determined?

As discussed in a previous post (Decrement Rate Assumptions – What are They?), the background and definition of decrement rate assumptions were established. However, you may be wondering how do we determine the probability of these decrements? Because we serve public employers, their employees are members of a state pension plan. For Wisconsin, this is the Wisconsin Retirement System (WRS); for Illinois, this is the Teachers’ Retirement System of the State of Illinois (TRS) and the Illinois Municipal Retirement Fund (IMRF); etc. Each of these state plans have to report liabilities of their own, and they will have an actuarial firm conduct an experience study wherein they determine expected decrement rates based on their member experience.

Given that your employees are also these members included in the experience study, we use the resulting decrement rates proposed by the experience study for your employees. Many employers are too small to consider conducting on experience study of their own. Also, you report your employees’ state pension plan liability in your financial statements, which use the decrement rates proposed in the experience study. As a result, it makes sense to use the same assumptions to calculate your OPEB liability.