The Rules That Bind – Actuarial Standards of Practice and the Actuarial Board of Counseling & Discipline
For actuaries practicing in the United States, the professional designations that matter most are the mid-level “Associate of the Society of Actuaries” (ASA) and upper-level “Fellow of the Society of Actuaries” (FSA). These hard-fought titles are earned by passing a series of increasingly difficult exams over many years, usually while also working full time at the start of a person’s career. However, in order to keep the designation they’ve gained, an actuary is required to become familiar with the Actuarial Standards of Practice (ASOPs) that apply to their area of practice, and to comply with such ASOPs using the guidance of actuarial Practice Notes (PNs) plus the refresh of annual Continuing Education. An actuary who runs afoul of the ASOPs must answer to the Actuarial Board for Counseling and Discipline (ABCD), which in the most severe cases can result in the person being stripped of their designation and unable to work as a credentialed actuary.
Actuarial Standards of Practice (ASOPs)
ASOPs are developed by the Actuarial Standards Board (ASB) to describe the procedures an actuary should follow when performing actuarial services and to identify what the actuary should disclose when communicating the results of those services. ASOPs are authoritative guidance for actuaries practicing in the United States, and the ASB has exclusive authority to determine whether an ASOP is needed in a particular actuarial practice area.
To assist actuaries in determining which ASOPs should be referenced for common assignment types, the American Academy of Actuaries (AAA) has published a set of Applicability Guidelines in the form of an Excel sheet with a tab for each practice area. These guidelines indicate that three core ASOPs are applicable to essentially every assignment: ASOP No. 1 (Introductory ASOP), ASOP No. 23 (Data Quality), and ASOP No. 41 (Actuarial Communications).
Other ASOPs are more specific, such as ASOP No. 6 (Measuring Retiree Group Benefits Obligations and Determining Retiree Group Benefits Plan Costs or Contributions), which applies to all aspects of performing a retiree health valuation. That particular ASOP is currently being revised by an ASB Task Force that includes Jim Whelpley, ASA, co-lead of the Retiree Health team at Rael & Letson.
Actuarial Practice Notes (PNs) and Continuing Education
Guidance on how to comply with certain portions of ASOPs are provided by the AAA’s actuarial PNs, especially where the practices addressed are subject to evolving technology, recently adopted legal requirements, or advances in actuarial science. In particular, PNs provide realistic examples of current and emerging approaches to the actuarial tasks in question. Rael & Letson’s Jim Whelpley is the main author of an ASOP No. 6 Practice Note, and he is currently working on PNs for Medicare Advantage / Part D Plan Cost Projections and for Prefunding of Public Retiree Health Plans.
The AAA also publishes a Code of Professional Conduct which obligates actuaries to (among other things) “observe applicable standards of practice … and to keep current regarding changes in these standards.” Keeping current essentially means acquiring at least thirty hours per year of relevant continuing education credits as described in the AAA’s U.S. Qualification Standards, which includes at least three annual hours on “professionalism” (typically gained by attending a formal meeting about an established ASOP, or assisting with the drafting/reviewing of a new ASOP).
Actuarial Board for Counseling and Discipline (ABCD)
The main missions of the ABCD are to
- counsel actuaries who have requested guidance (which accounts for over 50% of all ABCD cases),
- mediate professional disputes involving actuaries, and
- investigate alleged material violations of the actuarial Code of Professional Conduct then recommend some form of private or public discipline.
All ABCD activities remain confidential unless the affected actuaries agree to publication, or if a counseling inquiry results in a formal opinion (such as this opinion regarding the ASOP No. 6 requirement to age-rate medical/drug costs in a retiree health valuation), or if a violation investigation results in public reprimand.
In a typical year, the ABCD responds to over a hundred requests for guidance and it investigates a similar number of alleged violations. For the handful of those annual investigations in which the practitioner is found to be in significant noncompliance with relevant ASOPs and the practitioner declines to make amends, the ABCD will recommend that the person is expelled from all U.S. actuarial organizations with their professional accreditations revoked. That recommendation is nearly always followed by the AAA, Society of Actuaries, American Society of Enrolled Actuaries, Casualty Actuarial Society, and Conference of Consulting Actuaries.
A credentialed actuary is therefore not free to arbitrarily perform their work without any oversight. The actuarial standards are in place to maintain the integrity of the profession and protect the public which relies on the information produced by actuaries to make long-range decisions.
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