Notice of Disciplinary Determination

Notice of Suspension: Brian McGee

On December 19, 2012, the Society of Actuaries convened a Discipline Committee to review a matter referred by the

Actuarial Board for Counseling and Discipline (“ABCD”) related to the conduct of Brian McGee, FSA, a pension actuary for an employee benefits consulting firm. The Discipline Committee agreed with certain findings of the ABCD that Mr. McGee materially violated precepts of the Code of Professional Conduct. The Discipline Committee further determined that discipline is warranted, and that Mr. McGee should be suspended from SOA membership for three years, after which Mr. McGee may pursue readmission conditional on completing a professionalism course as deemed appropriate by the SOA Admissions Committee and/or the SOA Board of Directors.

Findings Regarding Precept 1

The Discipline Committee found that Mr. McGee materially violated Precept 1¹, because he did not act honestly, and acted in a manner that harmed the reputation of the actuarial profession. The Discipline Committee found that Mr. McGee co- signed two actuarial valuation reports which understated liabilities because of a data coding error known to the firm in which Mr. McGee worked before issuance of these reports. Mr. McGee knew of the error before signing these reports, but did not correct the error or disclose it to the client. The Discipline Committee also found that Mr. McGee knew of the firm’s intention to issue the following year’s valuation reports containing the same error and, although he did not sign those reports, he participated in the decision not to correct or disclose the error.

Further, with respect to Annotation 1-1², the Discipline Committee found that Mr. McGee did not exercise appropriate care in performing the actuarial services, in that he knowingly allowed the error to be repeated in consecutive valuations. In addition, Mr. McGee failed to exercise appropriate care and skill by not enlisting the assistance of colleagues with adequate health actuarial expertise in his performance of the retiree health plan valuation, even though he had ample health actuary resources within his firm at the time of the assignment.

Findings Regarding Precept 2

The Discipline Committee did not find that Mr. McGee, a pension actuary, materially violated Precept 2 or lacked qualifications to perform the relevant actuarial services based on the qualification requirements at the time Mr. McGee was performing the services. The statements of actuarial opinion at issue combined both pension and retiree health liabilities. The Discipline Committee noted that if the statement of actuarial opinion had covered only retiree health liabilities, Mr. McGee would not have been deemed qualified to perform the services and issue the statement.

Findings Regarding Precept 3

The Discipline Committee found that Mr. McGee materially violated Precept 3³ because he performed actuarial services that did not satisfy all applicable Actuarial Standards of Practice (ASOPs). The Discipline Committee found that Mr. McGee violated Section 5.3 of ASOP 23, “Data Quality,” then in effect (adopted July 1993), in that he failed to disclose his reliance upon others for certain data elements (health premiums); failed to disclose that these elements were not reviewed appropriately for reasonableness or applicability; and failed to disclose any resulting limitations in the use of the actuarial work product.

The Discipline Committee found that Mr. McGee did not violate Actuarial Standard of Practice 6, “Measuring and Allocating Actuarial Present Values of Retiree Health Care and Death Benefits,” then in effect (adopted October 1988), in the use of health care cost trend rates.

Materiality

Whether a violation is considered “material” is key in determining whether discipline is warranted.⁴ In its 2006 Discussion Paper, the American Academy of Actuaries (AAA) describes materiality, as follows:

“An omission, understatement or overstatement in a work product is material if it is likely to affect either the intended principal user’s decision-making or the intended principal user’s reasonable expectations.”

The Discipline Committee concluded that the noted violations were material in that:

• Failing to disclose or correct the error was intentionally dishonest.
• While disclosing the understated liabilities might not have changed the principal’s immediate decision-making with respect to current contribution rates, it may have affected other decisions by the principal, such as:
• Setting expectations for future contribution rate changes;
• Determining whether other retiree health strategies should be considered; and
• Determining whether to retain the actuary’s firm for future engagements.

Conclusion

The Discipline Committee found that Mr. McGee materially violated Precepts 1 and 3 of the Code of Professional Conduct. The Discipline Committee found that Mr. McGee did not technically violate Precept 2. The Discipline Committee determined that discipline is warranted and that Mr. McGee be suspended from SOA membership for three years, after which Mr. McGee may pursue readmission conditional on completing a professionalism course as deemed appropriate by the SOA Admissions Committee and/or the SOA Board of Directors.

All members of the SOA are reminded of their responsibility to follow the Code of Professional Conduct. Members are also reminded that when they are faced with potential issues regarding professional conduct, the ABCD is available for counseling.

¹ PRECEPT 1. An Actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.

² ANNOTATION 1-1. An Actuary shall perform Actuarial Services with skill and care.

³ PRECEPT 3. An Actuary shall ensure that Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice.

⁴PRECEPT 13, ANNOTATION 13-1. A violation of the Code is deemed to be material if it is important or affects the outcome of a situation, as opposed to a violation that is trivial, does not affect an outcome, or is one merely of form.