In their work, pension actuaries are often required to estimate the long-term future investment returns of a pension plan's assets. If the pension plan assets contain equities, an estimate of the future investment returns of total plan assets must include the actuary's estimate of the long-term future investment returns of the pension plan's equity investments.

In order to estimate the future investment returns of a pension plan's equity investments, the actuary will usually estimate the long-term return of one or more equity markets (e.g., the U.S. equity market). The estimated return of an equity market is often calculated as the estimated return on government bonds plus an estimated equity risk premium. For this purpose, the equity risk premium is defined as the extra return that the overall equity market is expected to provide over the return on government bonds to compensate for market risk. The equity risk premium assumption also has a number of other uses.

Actuaries typically look back at historical experience when estimating equity risk premiums. The SOA Pension Section Research Committee is interested in research to help actuaries develop forward thinking long-term (e.g., 15 years or more) estimates of future equity risk premiums. Ideally, the research will also address some or all of the following questions:

• What are the factors behind historical experience and are they likely to continue?
• How might increasing globalization impact equity risk premiums?
• How might the transition from a manufacturing to a knowledge-based economy impact equity risk premiums?
• How might the aging populations of the industrialized world impact equity risk premiums?
• How might future equity risks premiums differ from country-to-country and/or region-to-region?
• How might equity risk premiums compare to risk premiums for other asset classes? Will historical relationships hold or will there be factors that change these relationships?
• Is there a relationship between equity risk premium levels and return volatility? How might this relationship change over time?
• Are there other factors that an actuary should consider when estimating the equity risk premium?

Proposals should indicate whether the research will involve a literature search and/or quantitative analysis.

To facilitate the evaluation of proposals, the following information should be submitted:

1. Resumes of the graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
2. An outline of the approach to be used, emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
3. Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
4. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions.
5. Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to North American Actuarial Journal, Other investment journals, SOA Monograph Series, CD ROM).
6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The SOA Pension Section Research Committee is responsible for the selection of the proposals to be funded. Input from other knowledgeable individuals also may be sought, but the Committee will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group (POG) will be appointed to oversee the research along with the experienced researcher who is recruited.

Any questions regarding this RFP should be directed by fax, or e-mail to: Steven Siegel, SOA Research Actuary (Fax: 847.273.8578).

If you intend to submit a proposal, please send written notification by e-mail by August 31, 2011 to Barbara Scott or FAX (847.273.8592).

Please e-mail a copy of the proposal to: Barbara Scott at bscott@soa.org.

Proposals must be received no later than September 15, 2011. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than October 2011.

Note: Proposals are considered confidential and proprietary.

The SOA Pension Section Research Committee reserves the right to not award a contract for these research topics. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available to proceed. The SOA also reserves the right to redirect the projects as is deemed advisable. The SOA intends to copyright and publish the results of this research. The research will be considered work-for-hire and all rights thereto belong to SOA. However, appropriate credit will be given to the researcher(s).