Best Practice: Procuring Actuarial Services

Unfunded pension liabilities pose one of the greatest risks to fiscal stability for state and local governments. Without proper funding and careful annual analysis, these lingering liabilities can quickly snowball into fiscal crises. Many pension funds are still recovering from the 2008 financial crisis and have yet to return to pre-crisis funding levels, leaving governments under pressure to balance long-term obligations with short-term budget realities. 

Actuarial services play a pivotal role in this equation. Their work determines the Actuarially Determined Employer Contribution (ADEC), directly influencing annual budget pension contributions. Selecting the right actuarial partner requires a robust process to ensure high-quality, independent, and ethical service. Here's how to get it right—with insights, recommendations, and a touch of humor to lighten the load. 

What’s the Difference Between an Accountant and an Actuary?

An accountant has a personality. 

Okay, now that we’ve had our laugh, let’s dive in. 

Actuarial assumptions such as long-term rates of return, mortality tables, and the smoothing of gains and losses shape pension fund liabilities and required contributions. As the long-term rate of return assumptions have declined, annual budget pressures have increased. This makes selecting an actuarial service not just a decision, but a strategy to protect financial health.  

GFOA recommends that state and local governments take the following steps to obtain an actuarial service for their public retirement plans.

a) Identify the services required

b) Establish selection criteria

c) Develop an RFP proposal

d) Evaluate independency

e) Working procedures

f) Review and rebid contracts periodically.

Below are some steps that you can take to help you get through this process:

Best Practices for Selecting an Actuarial Service

1. Define the Scope of Work

• - Clearly specify the services needed in the **Request for Proposal (RFP), including reporting, analysis, and presentations. 

• Develop transparent scoring criteria and share them in the RFP. Typically, cost should account for 20-30% of the total score. Avoid overemphasizing cost to ensure the focus remains on quality. 

• Include stakeholders, such as pension board members, in the evaluation process. 

2. Prioritize Qualifications and Experience

• Make experience, certifications, and industry expertise a primary focus of the RFP evaluation. 

• Require references to validate past performance and service quality. 

3. Use an Open RFP Process

• Advertise the RFP widely and invite qualified firms to participate. 

• Leverage SaaS tools for bid management to streamline and simplify the process.

4. Set Transparent Evaluation Criteria

• Incorporate categories like experience, qualifications, service approach, and cost. 

• Consider excluding cost from the initial evaluation to rank firms purely on quality before reviewing their pricing proposals. 

5. Ensure Ethics and Independence

• Centralize all communication through a designated contact person during the RFP process. 

• Establish a Q&A period and publish all responses in an addendum to maintain transparency. 

• Avoid direct contact between vendors and evaluation team members to preserve independence. 

Pro Tip: Periodic Review and Rebid

Don’t let complacency take root—rebid actuarial contracts every 5-7 years. A fresh perspective can ensure assumptions remain relevant and services stay competitive. 

Following these steps will elevate your actuarial service selection process, supporting long-term fiscal sustainability and building trust among stakeholders. By being thorough, transparent, and focused on quality, you’ll ensure your pension fund is in capable hands.