Description: Interest rate changes and volatile equity returns have contributed to significant funding and expense volatility for defined benefit plans in recent years. This paper will describe the design of an option contract with payouts that are tied to the combined impact of interest rates and investment returns on the funding level of a defined benefit pension plan. Current derivatives used by plan sponsors can limit exposure to one of these risks; however, a derivative that combines these risks may provide more targeted protection to a plan sponsor at lower cost. This paper discusses several considerations in designing such a derivative. It will also briefly discuss pricing of the option. Finally, the difference in potential outcomes between plan funding with and without option ownership will be demonstrated. As an outcome of the design work, a new way to visualize pension risk that may be useful in sponsor accounting disclosures will be shown.

Description: Recently, we have seen renewed interest in the international (or “offshore”) pension plan. An international plan typically provides benefits for internationally mobile workers of a multinational employer, but can also be used for certain other workers. The plan is usually located in a respected international finance centre.

Description: In a world where pensions for new hires are predominantly provided with defined contribution plans, defined benefit plans have moved in many cases from being a strategic human resource management tool to being a source of volatile historic liabilities and costs that need to be managed downward. While the approaches for dealing with these liabilities broadly consist of risk transfer, settlement or funding, the precise options available will vary by country depending on the local pension framework and legal requirements. Any company with material global pension liabilities would be well advised to monitor these closely, in order to be able to take advantage of opportunities to de-risk, and to ensure that a global pension de-risking budget is allocated to the activities which are expected to yield the best returns for the group.

Description: Overview of market trends impacting the group benefits space in Canada and the implications for insures as they prepare for future evolving industry dynamics.

Description: The article describes a dynamic investment strategy for defined benefit pension funds to de-risk the plan by changing the asset mix based on the funded ratio.

Description: The "feel free" strategy helps retirees understand when they can retire, how much they can spend and how much guaranteed income they might want. The approach is very simple - divide your age by 20 and feel free to spend that percentage of your savings in a year.

Description: This paper presents a theoretical treatment of the determination of the cost of vesting by a method not hitherto demonstrated to the Society. From Transactions of Society of Actuaries 1966, Vol. 18, Pt. 1, No. 52.

Description: This paper responds to comments on a proposed compulsory savings program combined with transparent investment vehicles designed to promote competition based on expense levels, fund performance and customer service. At retirement 50% of the account is annuitized in Participating Variable Annuity (PVA) backed by TIPS. All investment experience, expenses, and pooled longevity experience is passed to annuitants through periodic benefit adjustments. Annuities are priced uniformly based on age at commencement.

Description: Abstract: Interest rate changes and volatile equity returns have contributed to significant funding and expense volatility for defined benefit plans in recent years. This paper will describe the design of an option contract with payouts that are tied to the combined impact of interest rates and investment returns on the funding level of a defined benefit pension plan. Current derivatives used by plan sponsors can limit exposure to one of these risks; however, a derivative that combines these risks may provide more targeted protection to a plan sponsor at lower cost. This paper discusses several considerations in designing such a derivative. It will also briefly discuss pricing of the option. Finally, the difference in potential outcomes between plan funding with and without option ownership will be demonstrated. As an outcome of the design work, a new way to visualize pension risk that may be useful in sponsor accounting disclosures will be shown.

Description: In this paper, we derive three important longevity Greeks on the basis of an extended version of the Lee-Carter model that incorporates stochastic volatility.