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Overview
This Call for Papers is being issued to inform and advance the Society of Actuaries Pension
Section Council's Retirement 20/20 project. Its topic—optimal strategies for distribution of retirement
income resources—is an outgrowth of discussions that occurred at the 2006 Retirement 20/20 conference.
Those interested in responding are encouraged to review the Report from the 2006 conference. This document can
be found at Retirement2020.soa.org. It is also
recommended that respondents review the discussion materials from the September 2007 conference, when they become
available.
The primary objective of this Call for Papers is stimulate debate on how individuals can best
optimize the distribution and use of a lifetime accumulation of retirement resources to support and sustain them
in retirement.
Background: Retirement income resources have evolved since the inception of
the concept of "retirement." These resources have primarily been a combination of social security benefits, employer
retirement benefits, and individual savings. More recently, wages from continued employment after traditional retirement
ages are also a contributing source of income. More than ever, the relative combination of retirement income resources
varies according to individual choices regarding income accumulation and income distribution.
Concurrently, responsibility for acquiring and managing retirement resources has shifted from employers
and, to a lesser extent, from government to individuals themselves. As a result of this transfer, knowledge and strategies
for the sustainable and responsible distribution of retirement resources are also shifting. This trend is reinforced by the
fact that the majority of workers are now accumulating retirement resources solely through employer-sponsored defined
contribution (DC) plans where the primary method of distributing funds is a lump sum. More often than not, there is no life
annuity option available. In contrast, when defined benefit (DB) plans were the primary employer–provided pension plan
it was intended that guaranteed, lifetime income would be available from the DB plan for workers and their dependents, in
addition to baseline benefits available through Social Security. In terms of government resources, Social Security benefits
in the U.S. are, for many workers, becoming the only retirement income resource payable as lifetime income (with survivor benefits)
based on work history.
Considerable attention has been paid to when, what, and how workers invest in defined contribution (DC)
plans. There has been far less focus on the asset distribution phase and even less on how resources are—or will
be—managed in retirement and how the changing definitions and patterns of retirement may affect resource distributions.
Additionally, growing numbers of workers are faced with making their own decision about the timing of their retirement and assessing
the available resources to sustain their income needs in retirement.
Experience has thus far shown that, for many reasons, participants in defined contribution plans often
do not make the most appropriate decisions when it comes to investments. These decisions—or lack of decisions—bear
directly on the ultimate fund accumulation and often set the stage for determining the timing of retirement. While there has
been much focus in recent years on default options for investments, auto–enrollment, and auto–increases, there
has been little attention on distribution default options.
For the distribution phase of DC plan retirement resources, possible approaches include
(but are not limited to):
- Mandated methods:
- Distribution with no choice (such as in U.S. Social Security)
- Default payment for benefits (such as in U.S. defined benefit plans)
- Availability of certain option(s)
- Broader choice in cases of larger accumulations
- Permission to offer a variety of options—with or without constraints
- Distinctions between options that can be offered or provided as defaults
- Safe–harbors for some types of default options
- Permission to sell financial products for the provision of payout streams
- Distribution of benefits as lump sums
- Individual choice (such as exists today)
- Possibility of "negative choice" through use of defaults to specific distribution options
Stimulus: The Society of Actuaries Retirement 20/20 project is seeking to define a
new framework for a sustainable retirement system. The project is focused on aligning the fundamental roles and risks of
each of the four major stakeholders: government, employers, individuals and the investment/insurance markets. This Call for
Papers seeks to contribute significantly to the framework of how accumulated resources are used for decision–making purposes
and how they should be managed for appropriate distribution in retirement. Separately, while there are many legal issues that
place constraints on what employer plans may provide and offer, those constraints will be considered in a separate component of
the overall Retirement 20/20 project. Respondents to this call for paper may assume a constraint–free environment in
formulating their ideas. However, they may also include within their papers discussion of constraints and possible solutions
in light of them.
Questions for consideration: Respondents may wish to consider the following questions when
preparing their submissions (Please note: these questions are for illustrative purposes and do not preclude other related topics):
- What are the key goals for the distribution of accumulated resources for retirement?
- How do the goals vary by stakeholder group?
- Is minimizing the risk of individual's outliving their savings a key goal for the distribution of retirement resources?
- What is the best way to manage financial and longevity risks during retirement?
- What are the distribution options that could, in theory, be included in arrangements for retirement assets, and how might they work?
- What is the appropriate role of various stakeholders (government, employer, employee, investment markets) in post–retirement
resource management? Examples should be included if possible.
- How are the roles, views and goals of the various stakeholders likely to differ with respect to the consumption of retirement resources?
- What are the optimum societal outcomes? What are the appropriate trade–offs between personal freedom and societal outcomes?
- Is a government mandated solution needed? How might mandates be combined with choice, so that the mandate applies to part of
the benefit or allows an opt–out in some cases?
- How does the changing and varied definition of "retirement" affect the distribution of accumulated assets for "retirement?"
- What methods of distributing retirement resources are used in other countries that may be relevant and appropriate for the
United States and Canada? How are they viewed by the various stakeholders in those countries? What are their pros and cons?
- What distribution risks should be hedged or pooled?
- What risks should not/cannot be hedged or pooled?
- What are the trade–offs between mandatory and voluntary pooling?
- Is annuitization recommended and, if so, under what circumstances?
- If annuitization is recommended, are there preferable ages or times or durations for it? How and when can multiple sources of
retirement funds be combined to provide for a more risk–free distribution? (e.g., can rollover assets serve a special purpose in
the annuitization of retirement resources?) What level of risk exposure should individuals retain? Are they retaining too much or
too little today?
- How does the individual adapt and react to financial changes over time?
- What default options for the distribution of retirement resources could be used in theory and what would be the pros and cons
of each? How might they work?
- What issues must be considered in focusing on mandates vs. default vs. available options?
- How should spousal benefits and rights be incorporated?
- What are the roles of mandates and tax incentives?
- How much individual choice should be offered in decisions related to the use of retirement funds, and how might the level of
choice be allowed to vary among the various sources of retirement funds? How do age of access, conditions of access, level of
accumulated funds, and methods of payment factor into this question?
- What do we already know about the drivers of choice and how individuals select distribution methods?
- With respect to those offering advice to consumers, what are the pros and cons of upfront compensation to an advisor or agent
vs. basis point compensation and what requirements/value should be demonstrated?
- Are structured options important?
- How should such issues as education, compensation, employment history, continued employment and later retirement ages be combined
in aiding individuals in making these decisions?
- Should the plan structure during the accumulation period influence the method of payment of benefits during the distribution period?
In terms of scope, respondents are free to consider several of these issues or focus exclusively on one issue.
As previously noted, papers do not need to be constrained by current legislation or practices.
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Expected Content of Papers
To expand knowledge on this topic, the organizers of this Call for Papers are seeking to compile papers
that consider a spectrum of perspectives and solutions on the issue of distribution options. The organizers are primarily
interested in papers that focus on distribution options for savings plans and other accumulation vehicles. It is recognized
that any one paper is likely to address only certain aspects of the broader questions and potential solutions.
Papers that present solutions and design alternatives with a longer term or "thinking outside the box"
perspective, including solutions that perhaps would not be easily implemented without legislative changes and shifts in societal
thinking are particularly welcome.
Authors may submit either original research or expository papers. The papers have no required minimum or
maximum length.
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Procedure for Submission of Abstracts
Please submit an abstract or outline of your proposed paper by June 30, 2008 to:
- Jeanne Nallon
- Society of Actuaries
- Fax: 847.273.8592
- E–mail: jnallon@soa.org
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 brief biographical paragraph summarizing the author's experience, prior publications and presentations,
and contact information.
Procedure for Reviewing Abstracts
Submitted abstracts will be evaluated by a review group for their potential for presentation at a future
event sponsored by SOA Pension Section. Depending on the timing of the ultimate receipt of the papers, there may be an opportunity
for authors to participate in a discussion of their papers at the 2008 SOA Retirement 20/20 conference. Authors will be notified as
soon as possible if this opportunity arises.
Abstract submissions will be accepted, accepted subject to revision, or declined. The review group is scheduled
to complete its evaluation of the abstracts/outlines in
August 2008.
Submission of Papers
All papers must be based on accepted abstracts and submitted in a complete format no later than December 15, 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 at jnallon@soa.org.
Publication and Presentation
The review group, after receiving all submissions, will determine if an event for presenting the papers is appropriate. Should this occur:
- It is anticipated that travel and lodging expenses for authors selected to present will be reimbursed, up to certain limits.
- A final determination as to the number of papers invited to present will be made after all abstracts have been submitted and reviewed.
As noted in IV. Procedure for Reviewing Abstracts, depending on the timing of the ultimate receipt of the papers,
there may be an opportunity for authors to participate in a discussion of their papers at the 2008 SOA Retirement 20/20 conference.
Authors will be notified as soon as possible if this opportunity arises.
It is anticipated that all accepted papers will be published. The papers will appear in an on–line monograph
and, where appropriate, in Society of Actuaries publications such as The Pension Forum. Upon author request, accepted papers may also be
submitted to the North American Actuarial Journal for publication consideration. Authors can submit their papers to other publications
provided that the Society of Actuaries can maintain the right to publish the papers.
The Society of Actuaries 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. In special publication
circumstances, the Society of Actuaries will work with authors to find a mutually agreeable arrangement.
The Society of Actuaries reserves the right to reject or not publish any papers not meeting the criteria and standards
set by the review group.
Questions
Please direct any questions regarding this Call for Papers to:
- Steven Siegel, Research Actuary
- Society of Actuaries
- ph: 847.706.3578
- f: 847.273.8578
- e–mail: ssiegel@soa.org