The Longevity of Assumptions Used in an OPEB Valuation

Key Benefit ConceptsActuarial, OPEB

One thing that most, if not all, assumptions included in your valuation have in common is that they are long-term assumptions that span over the entire duration of the valuation. Oftentimes, this is 30+ years. While some of your actual experience, such as salary increases or medical premium increases, for the subsequent year may not match the assumptions, it is important to remember the broader scope of the assumptions used and that they are best estimates. Your medical premiums may only be increasing 3.5% for the next plan year instead of 6.5% as was assumed, but the following year you could easily see a 9.0% increase where 6.0% was assumed. In this example, the actual and assumed premium rate levels after two years are very close (12.8% actual increase versus 12.9% expected increase). Even though this is a short-sighted example, you can see the bigger picture of how one year’s experience is not indicative of how accurate an assumption may be over 30+ years.