Description: The SOA’s target benefit plan research project began by exploring the risk and reward characteristics of the simplest design at the DC end of the spectrum. Under this design, there is no explicit risk sharing among members aside from mortality risk. The affordability of benefits is assessed at each valuation by reference to the funded ratio determined under the Traditional Unit Credit (TUC) cost method, and action is taken immediately (by adjusting the accrued benefits of both active and retired members in the same proportion) whenever this ratio differs from 100%. The first Issue Brief on target benefit plans referred to this design as a Collective Defined Contribution (CDC) plan. Modelling revealed a high probability of shortfall events over long horizons as well as considerable instability of benefits year to year, even with relatively conservative choices of asset mix and valuation assumptions.

Description: Evaluate the potential for target benefit plan designs across the full spectrum of defined benefit to defined contribution to provide more flexibility in benefit design while considering regulatory implications.

Description: Most Canadian stakeholders to date have focused on DB-like implementations of TBPs, many of which are very complex arrangements with multiple layers of benefit security-enhancing features. In order to help stakeholders understand the contribution of each element to this complex whole, it is instructive to start from a much simpler design and ask: • What are the fundamental characteristics of a simple TBP? • How do benefits behave when using simple tools to manage risk? • What other features could be considered to enhance benefit security and stability, if desired? To answer these questions, the SOA’s research project investigated several design options under a variety of assumptions. Each permutation had the same sponsor commitment (same starting asset value, plus annual contributions of 10% of pay) and the same general structure for the target benefit (a percentage of career-average-earnings times years of service, without an explicit indexation provision either before or after retirement) but they each had a different benefit adjustment mechanism and/or investment policy.

Description: This report introduces the concepts of BaR, creating measures for members to understand the benefit risk in these pools. The authors focus on the measures of budgeting and decision making.

Description: Given the readiness of several stakeholders (including regulators and some plan sponsors) to endorse and implement TBPs, there is a need for easily accessible, actuarially sound information about the key elements of design and funding that can significantly affect the performance of such plans. Our project begins to address this need by investigating through stochastic modeling the way in which different design features and funding strategies impact performance over the short- and long-term. The key objectives of the research were to: • Identify basic dynamics of target benefit plans under specific key designs, starting from the simplest ones and noting the impact of more complex design elements. • Identify appropriate performance metrics for TBPs. • Identify some areas where future research may be needed. The purpose of this report is to document the models used, and to provide background and context for the Issue Briefs relating to this work.