Call for Papers–The Future Adequacy of the Supply of Long-term and Real-return Bonds and Its Impact on Defined Benefit Retirement Systems
- Overview
Last fall, the Pension Section Research Team issued a Call for Papers to explore the impact of the undersupply of high-quality long-term bonds in Canada and the U.S. on defined benefit retirement systems in Canada and the U.S. As a result of insufficient response, the team has decided to reissue the Call for Papers with a modified objective.
Rather than focusing on the impact of a presumed undersupply of these bonds, the team is interested in an exploration of the adequacy of the current and future supplies of these bonds in Canada, the U.S., and other countries to meet the future needs and obligations of defined benefit retirement systems.
Many of the same questions and issues for the original Call for Papers are still relevant, albeit with the modified objective in mind.
With slight modifications in the questions and issues from the original Call for Papers, the Pension Section Research Team would like to encourage researchers to examine the adequacy of this current and future supply on today's defined benefit retirement systems from one or more of the following (sometimes contradictory) perspectives:
- Impact on the actual cost of providing benefits–If demand outstrips supply, plan sponsors may find that they cannot purchase an immunized portfolio for their pension liabilities at an acceptable price. In instances of high demand and short supply, fixed income asset prices go up and yields go down.
- Impact on the perceived cost of providing benefits–Future periods of falling yield rates (resulting from the demand/supply imbalance) lead to lower interest discount assumptions and thus to higher pension liabilities and higher normal costs. A resulting low interest environment may or may not continue until the pension promises being funded currently must be paid for. Does this, or does it not, mean that the actual cost of providing benefits will be higher than originally believed? By how much? When and how will sponsors know?
- Impact on the perceived cost of providing inflation-indexed benefits–Actuaries would like to use real-return bonds to assist in identifying appropriate inflation assumptions to use when plans offer indexed benefits. To what extent would the supply/demand imbalance, should it exist currently on in the future, skew the inflation assumptions being used in normal cost determination?
- Impact of an aging population–As workers grow older and more of them retire, there is an increased impetus to weight portfolios more towards fixed-income assets and away from equities. What impact does this have on the actual and perceived costs of providing benefits?
- Impact of Financial Economics–Plan sponsors who view pension obligations through a Financial Economics lens will choose to weight their portfolios towards fixed-income assets. What impact does this have on the actual and perceived costs of providing benefits?
- Can supply be increased?–How might governments or other entities be encouraged to issue long-term and/or real-return bonds in cases of an inadequate supply?
- Impact on plan design–What could an undersupply of long-term bonds and real return bonds do to the retirement systems we now have or in the future? Is the supply of fixed income assets a primary consideration when employers decide to freeze DB plans, establish certain plan features or designs such as a cash-balance plan tied to short-term interest rates, or set up DC plans in lieu of DB?
- Impact on insurers–Life insurance companies like to use long-term bonds to back obligations related to the annuities that they sell to pension plan sponsors and others. What impact would an inadequate current or future supply have on this product's pricing and appeal?
- Impact on defined contribution plan members–As the population ages, we expect to see a certain degree of migration of DC assets towards fixed-income investments either because of the advice older workers receive from their employers or because of the use of self-adjusting "life cycle" funds. What impact could lower bond yields have on the asset growth and eventual retirement income of DC plan participants?
The purpose of this Call for Papers is to encourage the development of ideas in some or all of the above areas.
- Content
To expand our thinking on this subject, the Society of Actuaries Pension Section Research Team is issuing this Call for Papers, inviting researchers, analysts, and other interested parties to perform quantitative research in the above areas, arrive at observations and conclusions, and further the debate related to various aspects of this issue.
Authors may submit either original research or expository papers. The papers have no required minimum or maximum length.
- Procedure for Submission of Abstracts
Submit an abstract or outline of your proposed paper by September 12, 2008 to:
At a minimum, the abstract submission should include a brief description of the subject of the paper, a list of key items to be covered and a biographical paragraph containing the author's experience, prior publications and presentations, and contact information.
- Procedure for Reviewing Abstracts
Submitted abstracts will be evaluated by a review group. The review group will consider the papers' potential for publication in a monograph, as well as possible presentation at an SOA Pension Section-sponsored event in 2009.
Abstract submissions will be accepted, accepted subject to revision, or declined. The review group is scheduled to complete its evaluation of the abstracts/outlines by October 31, 2008.
- Submission of Papers
All papers must be based on accepted abstracts, and submitted in a complete format no later than December 31, 2008.
The procedure for submission of papers includes the following specific guidelines:
- Submissions that have a copyright must be accompanied by written permission to reprint.
- Submissions should be made electronically to Jeanne Nallon.
- Publication and Presentation
The review group, after receiving all submissions, plans to award a prize of $1,000 for the best paper submitted. Finally, the review group will determine if a symposium for presenting the papers is appropriate. Should this occur:
- It is anticipated that travel and lodging expenses for authors selected to present at the symposium will be reimbursed, up to certain limits.
- A final determination as to the number of papers invited to present will be made after all papers have been submitted and reviewed.
It is anticipated that all accepted papers will be published. The papers will appear in an on–line monograph and, where appropriate, in SOA publications such as The Pension Forum. Upon author request, accepted papers may also be submitted to the North American Actuarial Journal (NAAJ) for publication consideration. Authors can submit their papers to other publications provided that the SOA can maintain the right to publish the papers.
The SOA reserves the right to publish all papers and to copyright all published papers without a previous copyright. In addition, excerpts or synopses of the papers may be published for promotional purposes.
The SOA reserves the right to reject or not publish any papers not meeting the criteria and standards of the review group.
- Questions
Please direct questions regarding this CFP to:
- Steven Siegel, SOA Research Actuary
- ph: 847.706.3578
- f: 847.273.8578
- e–mail: ssiegel@soa.org