Actuarial Inputs and the Valuation Of Public Pension Liabilities and Contribution Requirements: A Simulation Approach

Chen, Gang; Matkin, David S. T.

doi:10.1111/pbaf.12154

Cited by 17 publications

(9 citation statements)

References 28 publications

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“…This method considers the pensionable salary projected to the retirement age and depends on the years of service of the participant at the assumed retirement age. The Projected Unit Credit (PUC) method divides the total pension benefits at the normal retirement age by the total length of service into a unit of pension benefit unit which is then allocated to each year during the period of employment (15).…”

Section: Methods Of Studymentioning

confidence: 99%

Investigating the Sensitivity Effect of Actuarial Assumptions on Pension Liabilities in Malaysia

2021

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Malaysia will be an ageing population by 2030 as the number of those aged 60 years and above has increased drastically from 6.2 percent in 2000 and is expected to reach 13.6 percent by 2030. There are many challenges that will be faced due to the ageing population, one of which is the increasing cost of pensions in the future. In view of that, it is necessary to investigate the effect of actuarial assumptions on pension liabilities under the perspective of ageing. To estimate the pension liabilities, the Projected Unit Credit method is used in the study and commutation functions are employed in the process. Demographic risk and salary risk have been identified as major risks in analyzing pension liabilities in this study. The sensitivity analyses will be conducted in the study to investigate how the pension liabilities will be affected when these major risks changes. This study analyzes nine scenarios under assumptions in the actuarial model, namely age of retirement, rate of mortality and rate of salary growth. The result of this study indicates that the implied mortality experience and salary growth rate assumptions have a significant impact on pension liabilities.

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Section: Methods Of Studymentioning

confidence: 99%

Investigating the Sensitivity Effect of Actuarial Assumptions on Pension Liabilities in Malaysia

2021

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“…Arcas and Marti (2016) find that local governments seek to report a surplus/deficit close to zero and avoid reporting a big deficit by using abnormal accruals for fixed asset depreciation and impairment expenses, whereas Anthony (1985) finds that several major local governments in the U.S. played accounting “games” to hide their unhealthy financial condition to report a small surplus even on the brink of bankruptcy. Chen and Matkin (2017) find that the funded ratios of pension systems are affected by their actuarial assumptions, including discount rates, salary rates, cost methods, and mortality tables. They conclude that too optimistic assumptions have harmful impacts on pension liabilities and contribution requirement.…”

Section: Factors Behind Pension Underfundingmentioning

confidence: 99%

“…A variety of actuarial assumptions can lower the ARC (it is relatively hard to know what the actual “right” number is) and the complexity of pension assumptions is notorious (Chen, 2018; Chen & Matkin, 2017). First, actuarial estimation methods are complex because state and local governments tend to choose one of the six existing actuarial cost methods to determine their actuarial liabilities.…”

Section: Conceptual Framework and Formal Hypothesesmentioning

confidence: 99%

Public Corruption and Pension Underfunding in the American States

Liu¹,

Mikesell

Moldogaziev

2021

The American Review of Public Administration

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Unfunded public pension obligations represent a great challenge for policy makers in the American states. We posit that a part of pension underfunding relates to the level of public corruption. Empirical findings in the article show that funding ratios in public pension funds are inversely related to the incidence levels of corruption in the state, with other fiscal, political, and institutional covariates held constant. We show that this can happen through higher pension benefits, lower actuarially required contributions (ARCs), lower percentage of actual ARC contributions, and poorer investment outcomes. Based on empirical estimates, we find that a reduction of corruption by one standard deviation around the mean would permit the states to save on pension benefits by 10.24% annually (or US$1,894.64 per recipient), increase required ARC by 4.40%, increase actual ARC contributions by 8.46%, and improve investment returns by 4.72%. Therefore, policies to reduce public-sector corruption, or to improve the insulation of pension funds in relatively more corrupt environments, can make a significant contribution toward tackling the public pension underfunding crisis in the American states.

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“…In contrast to the Swedish model, on the right-hand side we have included an item known as the "Value of change in the discount rate (G)", dG. The discount rate assumption is the most influential actuarial input affecting both funding ratios and contribution requirements (Chen & Matkin, 2017). In our model it does not affect the level of contributions, but is very important for valuing pensions in payment and to compute the balance ratio.…”

Section: Assets Liabilities and Sponsor Support (Capital)mentioning

confidence: 99%

Does the pension system’s income statement really matter? A proposal for an NDC scheme with disability and minimum pension benefits

Garvey

Ventura-Marco

Vidal‐Meliá

2020

Economic Research-Ekonomska Istraživanja

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This paper develops an accounting model for monitoring the solvency of a notional defined contribution (NDC) pension scheme with disability and minimum pension benefits. Using the annual report of the Swedish pension system as a benchmark, the "Swedish" actuarial balance is extended by adding an income statement fully explaining the reasons behind the changes in the system's solvency by type of benefit. In line with the reference model, assets and liabilities are measured at present value at each reporting date, and in each period, included as income or expenses on the Income statement. This accounting framework integrates both contributory and social aspects of public pensions and discloses the real cost of the disability contingency and the redistribution through minimum pensions. Apart from Sweden, this proposal could be especially interesting for improving the reporting of public pensions in countries such as Poland, Italy, Latvia and Norway.

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Actuarial Inputs and the Valuation Of Public Pension Liabilities and Contribution Requirements: A Simulation Approach

Cited by 17 publications

References 28 publications

Investigating the Sensitivity Effect of Actuarial Assumptions on Pension Liabilities in Malaysia

Investigating the Sensitivity Effect of Actuarial Assumptions on Pension Liabilities in Malaysia

Public Corruption and Pension Underfunding in the American States

Does the pension system’s income statement really matter? A proposal for an NDC scheme with disability and minimum pension benefits

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