Academy Board/CCA lawsuit

Professional Actuarial Topics Actuarial Politics
1

I didn’t realize there was a lawsuit going on, but I guess it’s been lower-drama than the prior lawsuits.

From email:

After two years of litigation funded by the Conference of Consulting Actuaries (CCA), Judge Michael Mullen of the Circuit Court of Cook County, Illinois, entered summary judgment in the lawsuit in favor of the defendants—the Academy and current and former members of its Board of Directors. Judge Mullen found that the Academy Board had the authority to adopt a September 4, 2018, bylaws amendment that changed the membership of the Academy’s Selection Committee. Judgment was entered on March 15, 2021.

Background
The Academy’s then-President Steve Alpert advised all Academy members by letter on September 7, 2018, of the bylaws amendment the Board adopted to change the composition of the Academy Selection Committee that appoints members of the Actuarial Board for Counseling and Discipline (ABCD) and the Actuarial Standards Board (ASB). Alpert explained the Board had adopted the amendment to maintain the independence and objectivity of the ASB and ABCD. Preserving that independence was and is vital to the public’s confidence in the U.S. actuarial profession’s ability to regulate itself through the two bodies, which are housed within the Academy.

On December 20, 2018, eight members of the Conference of Consulting Actuaries (CCA) filed a lawsuit in the Circuit Court of Cook County, Illinois, against every member then serving on the Academy Board of Directors. All but one of those eight plaintiffs were past, current, or future CCA presidents. The lawsuit sought a remedy to reinstate the CCA’s president and president-elect to the Academy Selection Committee and a judicial declaration that all actions taken by the Selection Committee after September 4, 2018, were null, void, and rescinded.

Earlier in the case, on June 19, 2019, Judge Mullen had dismissed the original Complaint on the basis that no injury to the Academy had been alleged and, therefore, a “derivative” cause of action on the Academy’s behalf was not alleged. The judge noted that the plaintiffs could refile an amended complaint to adequately plead a cause of action that alleged facts showing how the Academy was injured by the bylaws amendment.

On July 17, 2019, the same plaintiffs filed an amended derivative complaint in the same court. The defendants again moved to dismiss the amended complaint. The judge denied the motion, deciding to allow some discovery before ruling on the legal arguments raised in defendants’ second motion to dismiss. Over the following months, the Academy and the Board members responded to multiple discovery requests from the plaintiffs, including answering numerous interrogatories and requests to admit alleged facts, and producing approximately 200,000 pages of materials. Thereafter the parties briefed and argued cross-motions for summary judgment, which they agreed should be decided without any depositions being taken.

Outcome
On March 4, 2021, Judge Mullen heard oral argument on the cross-motions for summary judgment. Ruling from the bench, the Judge granted our summary judgment motion and denied plaintiffs’ motion for summary judgment. Judge Mullen heard argument for about 45 minutes before issuing his ruling. Judge Mullen ruled in defendants’ favor, holding that the September 4, 2018, amendment to change the composition of the Selection Committee was within the Board’s amendment power under Article XV of the bylaws.

On March 15, 2021, the judge entered the formal Judgment Order resolving the lawsuit in favor of the individual Board member defendants and the Academy and against the plaintiffs.

Significance
As was communicated in September 2018, the bylaws amendment was adopted after a thorough and in-depth study of the functioning of the Selection Committee by the Academy’s Strategic Planning Committee, the Executive Committee, and the Board of Directors. Other alternatives had been examined and found not to address the issues identified.

The outcome of this lawsuit clearly finds that the Academy Board had the authority to act as it did, and this is a significant ruling in the state in which the Academy is incorporated as a not for profit organization.

As we noted in 2018, we continue to welcome the participation of all members of the actuarial profession in the ASB and ABCD processes. The Academy’s bylaws require that both entities serve the entire U.S. actuarial profession. Neither the ASB nor the ABCD can or should represent the commercial interests of any organization, employer, or individual, and the Academy remains fully committed to preserving their independence, as it is vital to the public’s confidence in the U.S. actuarial profession’s ability to regulate itself.

So, are we done with all the lawsuits between actuarial orgs?

For now?

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2

Oh, and does this mean the new ASOP 4 will finally get adopted?

:popcorn:

3

I read the email, but I really don’t understand the lawsuit. The AAA changed it’s bylaws so that composition of the committee to choose the ABCD and ASB members was more independent, and the CCA was against that?

4

I’m not sure how it’s more independent. The change removed the CCA and ACOPA from the committee, so I get how they wouldn’t like that.

5

Ah, that makes more sense. I hadn’t understood that was the change made.

6

Just to make the implicit more explicit:

Pension actuaries were a wee bit over-represented due to how the ex officio seats were named, compared to the other actuarial orgs/fields.

This has had some effects, such as the updating of ASOP 4 (which I’m still waiting on… I will semi-resurrect the old AO thread in a bit. I think that’s one of the ones I copied, and if not, I will find my spreadsheet/notes/blog posts on the situation).

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7

Oh I forgot there’s an actuarial politics area.

Let me see if I know how to change this…

okay, that was easy.

8

CCA responds https://www.ccactuaries.org/member-resources/recent-litigation

Recent Litigation Within the Actuarial Profession and Why You Should Care

You may have seen information from the American Academy of Actuaries (Academy) about the outcome of a lawsuit by a group of eight Academy members against the Academy. Here is information that the Conference of Consulting Actuaries (CCA) believes that all U.S. actuaries need to know about this litigation:

  • CCA was not a party to the lawsuit, but supported it financially because we believe the Academy’s actions are detrimental to the actuarial profession in the U.S. Note that the eight Academy members who filed the lawsuit first attempted to convince the Academy to change course, to no avail.
  • CCA is deeply disappointed in the outcome of the lawsuit, and disagrees with the reasoning by which it was reached. As a professional actuarial organization in the U.S., we continue to believe that the efforts to require the Academy to follow its bylaws, and be accountable to its members and the U.S. actuarial profession, were the right thing to do for the profession.
  • We believe that the Academy has misrepresented and maligned other actuarial organizations, including the CCA, in a manner that merits a response.

What was the lawsuit about and how did it end?
In 2018, the Academy’s Board of Directors amended the Academy’s bylaws with respect to the membership of the Selection Committee that appoints individuals to serve on the Actuarial Standards Board (ASB) and the Actuarial Board for Counseling and Discipline (ABCD). That bylaw change removed representatives from the American Society of Enrolled Actuaries (ASEA) and the CCA from the Selection Committee, which previously included representatives from all five U.S.-based actuarial organizations from the very inception of this committee.

The court granted summary judgment to the Academy. We believe the case was wrongly decided, and that the judge’s reasoning renders the clear language of the bylaws meaningless and suggests that the Academy Board can violate its bylaws with impunity and with no recourse by Academy members. Nevertheless, the group that filed the lawsuit does not plan to appeal.

Why does this matter?
There are two reasons why all actuaries who practice in the U.S. should care about this.

First, it is important that the Academy remain accountable to its members and to the profession. The Academy was created in 1965 by the other U.S.-based actuarial organizations as the public interface arm of the profession. The stated mission of the Academy is to represent all actuaries and the actuarial profession in the U.S. The bylaws as originally adopted help ensure that the Academy’s activities met these goals, and require 2/3 of the members voting to approve any material bylaws changes.

The Academy Board unilaterally changed its bylaws regarding the composition of the Selection Committee for the ASB and ABCD (the Selection Committee) without the required member vote, disenfranchising the vast majority of its members. When they were challenged on this action, they attempted to have members approve a bylaw change that would have given the Board power to change bylaws without a member vote, thereby concentrating power and decision making in the small number of actuaries on the Academy Board. This does not seem consistent with their mission to serve the U.S. actuarial profession, nor is it consistent with claiming to represent all U.S.-based actuaries. Academy members recognized that this was not in the best interest of the profession and did not approve the amendment.

Second, the exclusion of ASEA and CCA from the Selection Committee, as well as the broader campaign by the Academy to delegitimize these organizations, is divisive, bad for the profession, and not factually based. As simply one example, at this link you will find the Academy’s September 7, 2018 announcement to its members of the bylaw change. The announcement denigrated both CCA and ASEA by suggesting that these organizations care more about commercial interests than professionalism. Actuaries who have experience with these organizations, either as members or as consumers of the high-quality continuing education (including ethics and professionalism training) offered by both organizations, know this to be an unfounded attack.

Why is it important that CCA and ASEA are represented on the Selection Committee?
All five U.S.-based actuarial organizations agreed to require their members to adhere to a single Code of Conduct, to be subject to the ASOPs promulgated by the ASB and the investigative process of the ABCD, and to financially support these bodies. While the Academy houses the ASB and the ABCD, in recognition of the joint nature of these bodies and their independence from the Academy and the other four U.S.-based actuarial organizations, the Academy bylaws formally spelled out the composition of the Selection Committee. In fact, only the Selection Committee, the ABCD and the ASB are expressly provided for in the Academy bylaws; other committees are left to the discretion of the Academy board. To CCA’s understanding, the Selection Committee is not, and never has been, an Academy Committee.

When the bylaw regarding the Selection Committee was adopted, the Academy Board of Directors included the Presidents and Presidents-elect of all five U.S.-based actuarial organizations. By explicitly identifying the individuals who were to serve on the Selection Committee in the bylaws, each organization believed they were assured that the composition of that committee would not be amended unless and until 2/3 of the Academy members voting agreed to alter its composition.

This spirit of cooperation described above served the profession well for over 40 years.

The five actuarial organizations primarily serve different actuarial constituencies. As noted in the 2006 report from the Critical Review of the U.S. Actuarial Profession (CRUSAP) task force “the profession is small but diverse, and each of the organizations serves a purpose for its members that might otherwise be overlooked in a monolithic organization.”

It is critical to the legitimacy (both real and perceived) of the ASB and ABCD that they have expertise in and representation of the various areas of actuarial practice in the U.S. when promulgating actuarial standards of practice (ASOPs) and in investigating disciplinary cases that come before the ABCD. It is in the best interests of both the public and the actuarial profession to have robust, yet practical, standards that work well in ensuring high quality work across all practice areas, and that the work of an actuary who is the subject of an ABCD investigation be judged by peers.

Such diversity in membership of the ASB and the ABCD can best be achieved by representation of all five U.S. based organizations that are subject to the Code of Conduct on the Selection Committee.

Just because the Courts ruled that the Academy has the right to amend their bylaws as they have done doesn’t mean that it was the right thing to do for the profession. We encourage any actuary who has concerns to voice those concerns directly to Academy leadership.

9

Yes, I believe that new ASOP 4 is coming right up.

10

Could you give me a brief rundown of what the new ASOP 4 is & how it’s related to this subject? Thanks.

not related / the office quote

Charles: You started on that rundown yet? [Looks at Jim’s screen.]
Jim: Oh, this is just something I’m taking a break with.
Charles: Oh.
Jim: I will get back to the rundown, uh, right now.
Charles: Okay, great.
Jim: Hey you know what? Do you have a rundown that I could take a look at, just so I know what type of rundown you’re looking for ?
Charles: Just keep it simple.
Jim: Keeping it simple -that’s what I’m doing. But I am working hard on this one. Real hard.
Charles: You’re working hard? On this?
Jim: No. Not too hard. Not harder than I should.
Charles: Right. I mean why work harder than you should.
Jim: No, I….

11

So here’s the thread I started re: ASOP 4:
https://community-new.goactuary.com/t/asop-4-update/2374

But let me do the nutshell-ish version.

ASOP 4 as it currently stands, is this:

It’s on pension valuation, as well as determining funding or costs for the pensions. The ASOP makes no distinction between private or public, single-employer or multiemployer.

A process for updating the pension-related ASOPs started in 2014 (not only ASOP 4), especially with an eye on public pensions, which have very little oversight, compared to ERISA plans. Two other of the pension-related ASOPs, on choosing economic and non-economic valuation assumptions, got updated and were adopted in 2020.

Proposed in the first and second exposure drafts of the revision for ASOP 4 would have been the disclosure of a risk-free-ish valuation of the pension obligation (again, with no distinction for public, private, single-employer, or multiemployer), which wouldn’t have the force of anything other than some information required as part of an actuarial report.

Of course, valuing pension promises using a 4% discount rate compared to a 7.5% discount rate can make a huge difference when your liabilities have a duration of about 10 years.

So, what exactly is the connection to the dispute above?

One of the barriers to getting the ASOP updated (and we can move the dispute as to why it needed updating over to that other thread) was the over-representation of pension actuaries, specifically, independent consultants specializing in public pension valuation, thanks to the CCA and ASEA.

Maybe it should just be left to the pension actuaries to try to police themselves, or perhaps U.S. actuaries outside public pensions have seen public pension practice in the U.S. as a large reputational risk to the profession.

And there may be other things at work – I’m just looking from the outside, watching the public letters and lawsuits go by.

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12

Does the current or proposed version have the 80% funding benchmark?

13

I appreciate that. Thanks. :toth:

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14

Amusingly, none of the revisions for ASOP 4 that I’ve seen have anything about negative amortization, but maybe I was misremembering it.

OTOH, 80% fundedness has not come up much for me lately…
image

…for some very obvious reasons:
http://stump.marypat.org/article/1433/the-end-of-an-era-where-are-the-80-funding-is-healthy-myths-of-yesteryear

But once you start dipping below 70%, it is really tough to get even the vaguely numerate to believe that 60% or 50% is a perfectly peachy funded ratio. People know that’s a failing grade in school. 80% might be a B – that sounds good. 60% is a D… and 50% is F.

And that’s valuing at 7.5%.

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