Actuaries and Key Stakeholders Convene for First Time to Re-Envision Retirement

CHICAGO, April 16 /PRNewswire/ -- The Society of Actuaries (SOA), in conjunction with the SOA Pension Section Council, today released Building the Foundations for New Retirement Systems, a report that examines retirement systems models against the needs, risks and roles of all stakeholders contributing to or benefiting from the current systems. Building the Foundations for New Retirement Systems is the first comprehensive report stemming from the SOA's Retirement 20/20 initiative, a project that brings together -- for the first time -- key stakeholders with an interest in developing new retirement systems. The first meeting in September 2006 leveraged the insights of more than 60 experts, including leading pension and retirement actuaries, corporate benefits managers, attorneys, public policy advocates and academics.

In Building the Foundations for New Retirement Systems, SOA Staff Fellow and white paper author Emily Kessler, FSA, EA, MAAA, FCA, carefully outlines the needs, risk and roles of redesigned retirement systems. The report fully incorporates perspectives surrounding today's challenges and the complexities of future retirement systems at a time when there is a decline in the use of defined benefit plans and generally recognized flaws in defined contribution plans.

"Fewer companies are able to offer the 50- or 80-year commitment of a defined benefit plan, so that burden is increasingly transferred to employees through defined contribution plans," Kessler said. "But defined contribution plans are just savings vehicles, and they are inefficient in terms of managing retirement risks and difficult for many people to manage successfully on their own.

"Clearly we need to develop plans for new retirement systems," Kessler continued. "But to make confident, smart decisions, we need to leverage the insights of those with a stake in the system and take a methodical approach to determining what their roles and responsibilities would be."

Retirement 20/20 participants developed six major themes they say will need to be addressed in designing new retirement systems:

  -- Systems should consider new norms for work and retirement and the role
     of the normative retirement age. Today, for most people, retirement is
     an "event" that happens at a certain age, typically 65. But in new
     systems, retirement might be considered a "process," where some might
     go in and out of the active work force or where others might be able to
     work longer than others. Having a generally accepted retirement age
     signals unnecessarily for some people that it's time to stop working.
     "In general, we're healthier and living longer than previous
     generations, so it might not be appropriate to have that normative
     retirement age," Kessler noted.

  -- Systems should align stakeholders' roles with their skills. Simply put,
     no stakeholder should be expected to play a role for which it is not
     equipped. This means, for instance, that individuals should not be
     expected to be experts in investing their retirement savings

  -- Systems should be designed to self-adjust. People are living longer,
     working longer, and family structures are changing -- all of which can
     affect our income in later years. In many ways, the world is much
     different from 30 years ago, and retirement systems need to reflect
     that. "If today's systems had self-adjusted, it might very well have
     been sustainable," Kessler said. "We might not be having this
     conversation now, and we need to make sure that the next systems are
     flexible in how and when benefits are paid and that also can adjust as
     workers change."

  -- Systems should be better aligned with financial markets. With today's
     two systems, most of the financial risk lies either with employers or
     individuals, and neither method is as sophisticated as it should be.
     New systems should look to the financial markets to more effectively
     pool and hedge these major risks. "This is an important issue that will
     take a lot of study," Kessler said. "It may be that we'll need to
     develop new market instruments."

  -- Systems should clarify the role of the employer. Employer-sponsored
     retirement plans have been a key source of retirement income. But
     regulatory changes have caused many employers to stop offering defined
     benefit plans. What should employer's role be regarding retirement
     plans?  Are the risks of retirement plans compatible with other
     corporate goals? Are they fair for global organizations with operations
     in countries without employer-sponsored plans? "What we do know is that
     employees do better when employers sponsor plans, and they trust their
     employers to offer good plans," Kessler said. "So while employers might
     not always be the best entity to sponsor the plans, they probably
     should continue to have a role."

  -- Retirement systems will not succeed without improvements in the health
     and long-term care systems. This was a generally accepted truth, but
     the Retirement 20/20 initiative will not address it. "Health care is an
     issue that affects everyone, not just retirees," Kessler said. "For
     improvements in health care to succeed, it will have to be addressed
     across the population and not just for retirees."

According to Kessler, the Society of Actuaries is the natural group to spearhead the Retirement 20/20 initiative. "Actuaries' training is in helping people and organizations identify and manage all types of risks," she said. "We know that the decline of defined benefit plans puts a burden on individuals. And with 78 million Baby Boomers reaching retirement age in the next 20 years, the pressures on the systems will increase substantially."

Robert Brown, Ph.D., FSA, director of the Institute of Insurance and Pension Research at the University of Waterloo and a Retirement 20/20 participant, said the process to develop final recommendations for new retirement systems is proceeding methodically, but its outcome will have important ramifications.

"We are taking a deliberate approach to be sure new retirement systems are sustainable," Brown said. "To achieve that, we need to make sure there are no conflicts among stakeholders' roles, risks and needs."

Based on consensus from Retirement 20/20 participants, the SOA and its Pension Section Council will supplement Building the Foundations for New Retirement Systems with additional research on self-adjusting systems, stakeholder roles and risk pooling. The first of these reports, on self-adjusting systems, will be available later this year.

About Retirement 20/20

Retirement 20/20 is an initiative that brings together -- for the first time -- key stakeholders with an interest in developing new retirement systems. The first meeting in September 2006 leveraged the insights of more than 60 experts, including leading pension and retirement actuaries, corporate benefits managers, attorneys, public policy advocates and academics. This includes representatives from Aon Consulting, Mercer Human Resource Consulting, Principal Financial, the Pension Rights Center, the Urban Institute, and the University of Alabama, Boston University and University of Waterloo. The Society of Actuaries held the first annual symposium in fall 2006 and will sponsor another symposium in fall 2007 to focus on how best to align stakeholders roles with their skills. For more information, visit http://www.retirement2020.soa.org/.

About Actuaries

Actuaries bring a complex future into focus by applying unique insight to risk and opportunity. Known for their comprehensive approach, actuaries enable smart, more confident decisions.

About the Society of Actuaries

The Society of Actuaries is an educational, research and professional organization dedicated to serving the public and its members. SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems involving uncertain future events. To learn more, visit http://www.soa.org/.

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