In addition to the services documented elsewhere, we receive requests not easily grouped into those categories. We called them specialized, and they are described here. What they have in common is our dedication to apply mathematics to solve problems. Although the challenges and outcomes may be different, our structured approach is consistent. As Society of Actuaries’ motto reads, “The work of science is to substitute facts for appearances and demonstrations for impressions.” (John Ruskin)
We provide a signed, emailed copy of the valuation report as soon as it is ready, and send an original signature copy by mail at that time as well.
Typically we can provide the report within 48 hours of receiving the complete list of input items. Quicker turnaround also is possible, upon request. When in-person testimony is requested, we are available to appear in court.
Estate and Related Matters
We are called on periodically to perform ad hoc calculations, and sometimes to summarize them in a written report. Consider the following requests from the past.
- Calculation of the likelihood of deaths of three siblings occurring in a stated order. This was used following the death of their mother to substantiate advice provided to her by an estate planning attorney. Adding to the complexity was the impaired health of one or more of the siblings.
- Opinion on the relative worth of several proposed life insurance policies, to assist a purchaser in the decision-making process.
- Calculation of the economic value of the employee’s portion of life insurance held in a pension plan. This was performed for a retirement plan who had failed to provide the numbers to its participants in prior years.
- Determination of the life insurance “incidental test” held in a pension plan. This was done to assist a plan under audit with the IRS.
We have provided expert witness testimony to both corporations and the Internal Revenue Service on matters of reasonable compensation. For example, an S-Corp’s attempt to understate compensation for an owner-employee to avoid certain taxes. Or a C-Corp’s attempt to overstate compensation for an owner employee to avoid the present double taxation on dividends. Although reasonable compensation practices among nonprofits is too early for a significant number of court cases, that time will come, and we are available to provide expert witness testimony in that area as well.
Our approach to reasonable compensation is rooted in our point-based valuation systems. We turn written duties into a point score for a job by assigning a number from our copyrighted system. After having done so for all (or a sampling) of jobs in the organization, we are able to establish the relative worth of one job compared with another in the organization. Finally, we adjust the resulting scale up or down depending on the realities of what the market is paying.
In this way, we provide an unbiased framework to value compensation. It is internally consistent and externally relevant.
Charitable Gift Reserve Valuation
Many nonprofits sponsor a program of charitable gift annuities for their members, donors, or parishioners. Unlike pensions held in trust, a gift annuity is a contract. Under the terms of the contract, the donor gifts to the organization a sum of money (or securities) in exchange for a series of fixed payments made to one or more beneficiaries, starting now or deferred to a later time. The money is gifted irrevocably, becoming part of the institution’s assets.
Under state law, these institutions are accountable for establishing an actuarial reserve based on the Standard Valuation Law. (Variations exist from state to state, and some states regulate them under their securities law.) Essentially each state requires the same standard as if the annuity were held by a life insurance company.
For years we have calculated these annual reserves, including a professionally certified report in a format acceptable to each state. As you can imagine, the requirements of the calculation can vary by state. Even the required format of the report and actuarial certification can differ by jurisdiction.
Our clients furnish us annually with an input file containing the essentials for each in-force life annuity. For example, names, dates of birth, future commencement date for deferred annuities, amount and frequency of the payments, and whether the payment is for a single life or joint lives. We spend a large amount of time analyzing the data and inquiring about any anomalies we discover. We then perform the calculation itself. Finally, we provide our clients with a copy of the detailed report, as well as a certified statement by the Appointed Actuary, and a notarization of the same. State-imposed filing deadlines on our clients mean that timeliness of our report and certification is essential.
In addition to the valuation based on state valuation requirements, we also revalue the annuities based on IRS requirements of interest and mortality. In this way, there typically are several gift annuity reports prepared annually for each client, with each serving a specific use.
Gift annuity actuarial valuation is one dimension out of their overall administration and compliance. To learn more about the subject, refer to the American Council of Gift Annuities. We would be pleased to review our practice with you as well.
Secondary Market for Life Insurance
A life settlement is the sale of an existing life insurance policy to a third party. The amount exchanged is more than the cash surrender value but less than the amount of protection. Broader than a viatical settlement, the life settlement market has grown rapidly over the last decade. Life settlement providers base their purchase offers on fresh medical underwriting and rely on the conclusions of Life Expectancy Providers (LEP).
We have provided actuarial analysis to life settlement providers who need a more thorough analysis of priced mortality vs. modified expected mortality. Although life expectancies can be purchased from LEPs, reverse engineering to an mortality table is difficult. What’s more, the recognition after purchase of new mortality tables with lower mortality tends to chip away at the profit margin built into the purchase price. In this way, our analysis focuses on the effect of in-force policies as well as refining mortality expectations for new purchases. Modeled mortality improvements and what-if analysis can prove helpful in forecasting future trends as well.