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DOES YOUR SERVICE AWARD PROGRAM “LOSAP” NEED A
CHECKUP?

So your Service Award Program (“LOSAP”) has been around for five, six, seven, eight maybe even nine years? When you first established the Program certainly, more than one estimate was calculated of the Program costs. Now that your Program has been around for a few years, the actual costs of the Program have emerged. The actuary who performs your annual cost calculations by now has a much “sharper” picture of what the expected payouts will be under your Program. In addition, all the persons involved in your Program by now probably have a high comfort level with the LOSAP Program.

Before everyone gets too comfortable, you might want to ask this question: “How “healthy” is our LOSAP?”

It might be smart to retain an auditing or actuarial firm to perform a “checkup” on your Program. What kind of things should the firm check?

Here are a few suggested “checkup” questions:

1} Are all current and future Service Award payment recipients included in the Program cost calculations?

2} Are projected Service Awards for persons who will receive little or no
benefits still being funded?

3} Are life insurance premiums being paid for persons who are no longer eligible for Service Award Program death benefits?

4} Have the actuarially calculated Program costs been fully paid to date?

5} Do the actual costs exceed the estimated costs disclosed to voters?

6} How close are the actuarial cost calculation assumptions to the real experience in the Program (for example, has the investment performance rate assumed by the actuary in the cost calculations been less than or greater than the actual investment rate earned by your Program investments?)

7} Are the persons who are currently responsible for LOSAP administration (including those persons who keep the Point System records) “up-to-speed” on the Programs rules?

8} Do all active members have updated copies of the written explanation of the Program rules (including the Point System)?

9} Have the Service Award Program investment/financial statements ever been audited and reconciled?

10} When is the last time anyone received a copy of a Program investment/ financial statement?

11} When is the last time anyone met with the Program investment advisor and reviewed the Program’s investment performance?

12} How does the investment performance of your Program compare to other alternative Service Award Program investments?

13} Where are your Program funds invested?

14} How much are your Program investments insulated from the market
“downswings” which have recently occurred in the stock market?

15} Where are previous years’ Service Award Program Point System records that might be needed to resolve disputes or to respond to an audit inquiry? (e.g., the meeting and drill attendance sheets, the call/ alarm response records, etc.)

Our firm administers Service Award Programs for almost 200 fire companies in New York State. We encourage all of our clients to have a Service Award Program “checkup” at least once every five years. Because, all of our clients are getting closer and closer to the point where more and more of their firefighters will begin to be paid Service Awards, we want to be certain that everything we are doing is absolutely sound. We welcome a “second opinion” from an auditor or an actuary about what we are doing. Certainly, whoever provides
administration or actuarial services for your Service Award Program ought to feel the same way we do about Program audits.

By the way, our “checkup” is not an “actuarial certification”. An actuarial
certification is simply a statement by a qualified actuary that the Program calculated costs are “adequate”. Our recommended checkup is far more comprehensive and includes a review of key Program operational components which an actuary assumes are in place when he or she issues an actuarial certification. It also includes an opinion as to whether-or-not the Program funding is “prudent” and not just “adequate”.

Finally, when you retain a firm to do your Service Award Program checkup, ask about the firm’s familiarity with Service Award Programs and be sure the firm’s real motive is not to replace your current Program administration and/or investment services provider.

Edward J. Holohan, ASA is President and Actuary of Penflex, Inc.