CIA Pension Seminar

CIA Pension Seminar
Colloque sur les régimes de retraite
April 16, 2007 y Le 16 avril 2007
Toronto, Ontario
Investment and longevity risks
CIA Pension Seminar y Colloque sur les régimes de retraite
• Scope
– Request from the Régie des rentes du
Québec
– Task Force established by the CIA
– Task Force will not solely focus on the
Quebec legislation
– Task Force will prepare a research Paper
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
•Terms of reference
“The Task Force will prepare a Research Paper on the
determination of appropriate PfADs for hypothetical
windup and solvency valuations of defined benefit pension
plans. It is expected that the Research Paper will provide
an analysis of the PfADs required to achieve specified
levels of benefit security over specified periods of time
with various levels of probability, given various funding
policies and economic scenarios. The Task Force is
expected to determine the appropriate parameters for its
analysis.”
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
•Possible uses of the research Paper
–For regulators to assess the impact of
establishing PFAD requirements for
solvency valuations
–To assist individual actuaries provide
analyses of potential risks as part of
valuation reporting
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Members of the Task Force
– Martin Cyrenne (Chair)
– Michael Banks
– Nicolas Morissette
– Lucien Pouliot
– Georges Langis
• Additional support from the Régie des
rentes du Québec
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Benefit security?
– From a general viewpoint, a plan should
• Be solvent “most” of the time and
• Be “nearly” solvent the rest of the time
• How (and who) should define “most” and
“nearly”?
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• PfAD?
– Provision for “adverse” deviation (poor
returns, asset/liability mismatch, …)
– Does not take into account the predictable
incremental cost increase (salary changes,
demographic, early retirement subsidies, …)
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Parameters considered
– Asset allocation
– Maturity
– Types of plan (career vs final average)
– Contributions
– Frequency of valuations
– Use of surplus
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Methodology
– Stochastic simulations
– Valuations of a “typical” plan
– Solvency valuations using market value of
assets and liabilities valued based on
SoP 3800
– At t = 0, assets = AL + PfAD
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Results
– Probability of being x% solvent in n years
with a PfAD of y%
– x% being 80%, 85%, 90%, 100% and 110%
– n years being 1, 3, 5 and 10
– y% being 0%, 3%, 7%, 10%, 15% and 25%
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Economic assumptions
– Several “models” analyzed
– Major asset classes treated
– Paper will provide results on “plausible”
scenarios
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Demographic assumptions
– Closed group
– No withdrawals, nor deaths before
retirement
– Retirement at age 65
– Different percentage of liabilities of actives
vs retirees depending on the scenarios
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• “Main results”
– Annual valuations
– Probabilities established over a 3-year period
– Probability of attaining various solvency levels
with specified levels of PfAD
– Tri-dimensional matrix of results
• Asset allocation
• Duration of assets (fixed-income)
• Duration of liabilities
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• “Main results”
– Initial subsets of results
• We hope to be able to present them on April 16
TF on the determination of solvency PfADs
CIA Pension Seminar y Colloque sur les régimes de retraite
• Next steps?
– Paper:
• Drafting by the Task Force
• Comments from the CIA Practice Council
– Translation in French
– Distribution to the membership: Paper and
Excel file
TF on the determination of solvency PfADs