Determining the Pension Benefit Obligation of a Defined Benefit Plan: Applying a Multivariate ARIMA Stochastic Model

<p>In this study we examine the robustness of fit for a multivariate and an autoregressive integrated moving average model to a data sample time series type. The sample is a recurrent actuarial data set for a 10-year horizon. We utilize this methodology to contrast with stochastic models to make projections beyond the data horizon. Our key results suggest that both types of models are useful for making predictions of actuarial liability levels given by PBO Projected Benefit Obligations on and off the horizon of the sample time series. As we have seen in prior research, the use of multivariate models for control and auditing purposes is widely recommended. Fast and reliable statistical estimates are desirable in all cases, whether for audit purposes or to verify and validate miscellaneous actuarial results.</p>

Missing Participants and Beneficiaries From Private-Sector Pension Plans

This article examines the problem of missing and nonresponsive participants and beneficiaries from defined-benefit (DB) and especially defined-contribution (DC) pension plans, mainly in the private (for profit) sector of the United States. It focuses on the current search requirements of the three government agencies involved in finding missing participants and beneficiaries: the Pension Benefit Guaranty Corporation (PBGC), the Department of Labor (DOL) and its Employee Benefit Services Administration (EBSA), and the Internal Revenue Service (IRS). The article also reviews the efforts of the Social Security Administration (SSA) in this area. It then reviews proposed legislation, the Retirement Savings Lost and Found Act of 2020 (now S. 1730; RSLFA). The issue of missing participants and beneficiaries often becomes critical when an employer goes out of business or for some other reason stops sponsoring a pension plan. The missing participants are owed their earned retirement benefits. They, not the employer, own them.

Pension Policy Literacy and Retirement Expectations: A Cross-Country Survey Experiment

Objectives This study reports the findings of the first cross-national survey experiment on the effects of information on the expected retirement age. Given the drawbacks of unrealistic retirement expectations, the study examines the impacts of nonpartisan information about future demographic aging and forecasted pension benefit levels. Methods An online survey experiment was conducted in the US, Germany and Spain in 2018 using an internet access panel. We assigned respondents to two random treatments: one citing the change in the projected share of the population older than 65 years (demographic treatment) and another citing the projected change in pension replacement rates (benefits treatment), both for 2015 to 2040. Treatment effects on the expected retirement age are reported. Results The benefits treatment has a strong influence on retirement expectations. In the US, respondents informed of the expected decline in pension replacement rates expect to retire two years later than respondents not informed of the decline. In Spain, this treatment leads to an approximately 9-month postponement of expected retirement, while no significant effect is found in Germany. In addition, the demographic treatment does not affect retirement expectations in the countries studied. Respondents in all countries informed of future population aging do not show different expected retirement ages than respondents not given this information. Discussion People’s retirement expectations are sensitive to information on future changes in pension generosity but not to information on population aging. The results suggest information campaigns focused on declining pension replacement rates may help extend working lives.

Determinants of Early Retirement in the UAE

The purpose of this paper is to analyze the retirement behavior of UAE nationals by understanding the socio-economic characteristics of early retirees and identifying the main determinants of early retirement. Accordingly, a survey study is created and deployed for current employees and retirees affiliated with Abu Dhabi Retirement and Pension Benefit Fund (ADRPBF). The survey was designed to reach 100 retirees and 200 currently active workers from those registered at the ADRPBF. The survey was conducted by employing the online survey method and face-to-face interviews. The total number of respondents is around 244, with a total response rate of 81.33%. Some factors related to the psychosocial work environment play a significant role in the early retirement decision of Emiratis. These factors are stress level, autonomy level and authority level at work. In addition to these, the level of work environment comfortability and life-work balance seem to also affect the early retirement decision. In general, the results indicate that higher the stress level, lower the level of autonomy and authority; higher the early retirement decision within the Emirati workforce. Last but not least, the likelihood of early retirement increases significantly if employees face a work-related health problem. Initiatives at the government and company level to adjust the working conditions for the capacity of elderly people shall be considered. Healthy living campaigns and sport programs might be launched to reduce work-related health problems and consequently early retirement. Our work is the first comprehensive study exploring the early retirement decision of the UAE nationals. One limitation of our study is the limited number of participants in the survey. Future work that will include a higher number of participants and supplementary questions to cover more job features (physical workload, other psychosocial factors) might be helpful.

Progressive Pension Formula and Life Expectancy Heterogeneity

An increasing number of empirical studies have shown a positive relationship between lifetime income and life expectancy at retirement. One’s income during the active part of one’s career translates into the amount of retirement benefits one might receive, leading to actuarial unfairness inside cohorts of retirees. In order to discuss unfairness and sustainability issues, the Belgium pension reform committee issued a proposal for a point system designed to be both sustainable and adequate. In this paper, we use a similar defined benefit framework in order to set out a compensation mechanism linked to life expectancy heterogeneity during the active part of the career, aiming to reduce unfairness once reaching retirement. This method is based on the progressivity of pension benefit formulae. We implement these ideas in a simple demographic context in order to capture the constraints related to the model.

Single-Employer and Multiemployer Pension Plans: Problems and Prognosis

This article examines the state of single-employer and multiemployer pension plans for the period 1980s to 2020 with particular attention to funding, Pension Benefit Guaranty Corporation benefit guarantees and intervention procedures, financial status, participant experience, employer premiums, and benefit payments. It then shifts to congressional efforts to save the plans beginning with the Multiemployer Pension Reform Act of 2014 and continuing through the complex development of the HEROES Act with its conflicting EPPRA and GROW Act provisions. Due to an unresolved conflict between the Senate Republicans and the House Democrats, the pension provisions were removed from the compromise legislation that was signed into law at the very end of the Trump Administration. The matter will be further addressed by the new Democratic-controlled Congress and the Biden/Harris Administration. However, that may take a while. The issues are complicated and the Congress may be busy with more pressing matters for some time to come.

Premium Valuation of the Pension Benefit Guaranty Corporation with Regime Switching

The Pension Benefit Guaranty Corporation (PBGC) provides insurance coverage for single-employer and multiemployer pension plans in private sector. It has played an important role in protecting the retirement security for over 1.5 million people since it was established about half a decade ago. PBGC collects insurance premiums from employers that sponsor insured pension plans for its coverage and receives funds from pension plans that it takes over. To address the issue of underfunded plans that the PBGC has, this work studies how to evaluate risk-based premiums for the PBGC. Inspired by a couple of existing work in which the premature termination of pension fund and distress termination of sponsor assets are analyzed separately, our work examines the two types of terminations under one framework and considers the occurrence of each termination dynamically. Given that market regime might have a big impact on the dynamics of both pension fund and sponsor’s assets, we thus formulate our model using a continuous-time two-state Markov chain in which bull market and bear market are delineated. We thus formulate our model using a continuous-time two-state Markov Chain in which bull market and bear market are delineated. In other words, the pension fund and sponsor assets are market dependent in our work. Given that this additional uncertainty described by regime switching makes the market incomplete, we therefore utilize the Esscher transform to determine an equivalent martingale measure and apply the risk neutral pricing method to obtain the closed-form expressions for premium of PBGC. In addition, we carry out numerical analysis to demonstrate our results and observe that premium increases according to the retirement benefit irrespective of the type of terminations. In comparison to the case of early distress termination of sponsor assets, the premium goes up more quickly when premature termination of pension funds occurs first due to the fact that pension fund is the first venue of retirement security. Furthermore, we look at how the premium changes with respect to other key parameters as well and make some detailed observations in the section of numerical analysis.