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<br /> <br />City of Lake Elmo Volunteer Fire Department 7 <br /> <br />Low-Default-Risk Obligation Measure <br /> <br />Actuarial Standards of Practice No. 4 (ASOP No. 4) was revised and reissued in December 2021 by the Actuarial <br />Standards Board (ASB). It includes a new calculation called a Low-Default-Risk Obligation Measure (LDROM) to <br />be prepared and issued annually for defined benefit pension plans. The transmittal memorandum for ASOP <br />No. 4 includes the following explanation: <br /> <br />“The ASB believes that the calculation and disclosure of this measure provides appropriate, useful information <br />for the intended user regarding the funded status of a pension plan. The calculation and disclosure of this <br />additional measure is not intended to suggest that this is the “right” liability measure for a pension plan. <br />However, the ASB does believe that this additional disclosure provides a more complete assessment of a plan’s <br />funded status and provides additional information regarding the security of benefits that members have <br />earned as of the measurement date.” <br /> <br />The following information has been prepared in compliance with this new requirement. Unless otherwise <br />noted, the measurement date, actuarial cost methods, and assumptions used are the same as for the funding <br />valuation covered in this actuarial valuation report. <br /> <br />A. Low-Default-Risk Obligation Measure of benefits earned as of the measurement date: $1,109,145 <br /> <br />B. Discount rate used to calculate the LDROM: 4.83% <br /> <br />C. Other significant assumptions that differ from those used for the funding valuation: none <br /> <br />D. Actuarial cost method used to calculate the LDROM: Entry Age Actuarial Cost Method <br /> <br />E. Valuation procedures to value any significant plan provisions that are difficult to measure using <br />traditional valuation procedures, and that differ from the procedures used in the funding valuation: <br />none <br /> <br />F. The LDROM is a market-based measurement of the pension obligation. It estimates the amount the <br />plan would need to invest in low risk securities to provide the benefits with greater certainty. This <br />measure may not be appropriate for assessing the need for or amount of future contributions. This <br />measure may not be appropriate for assessing the sufficiency of plan assets to cover the estimated <br />cost of settling the plan’s benefit obligation. <br /> <br />The difference between the two measures (Valuation and LDROM) is one illustration of the savings the <br />sponsor anticipates by taking on the risk in a diversified portfolio.