Actuarial group looking to reboot pension system with new alternative

SCHAUMBURG, Ill. — The Society of Actuaries wants to create a new pension system.

The organization is bringing together key stakeholders — including financial professionals, plan executives, consultants and academics — to develop a third program, one that would replace the defined benefit and defined contribution systems, said Emily K. Kessler, staff fellow in retirement systems at the SOA, based in Schaumburg, who is leading the effort.

The effort is called the 20/20 Retirement Project and “its purpose is to design a new system from the ground up,” according to an SOA report on the project.

The project sets out a framework of issues SOA officials expect to address in a series of symposia they plan to sponsor and research papers they hope to encourage, all in collaboration with a cross-section of experts in retirement and finance and related fields, Ms. Kessler said in an interview.

The initial effort of the project “sought to examine the stakeholders in the system, what the system must accomplish to meet their needs, what risks these stakeholders can take on and what role they can play in the system. It sought to determine what the system needed to accomplish, unconstrained by the structure of the existing retirement system and its regulatory structures,” the report said.

Major issues the SOA project identified involve better aligning the retirement system with financial markets to more effectively pool and hedge retirement risks. possibly developing new market instruments and also clarifying the employer’s role regarding the compatibility of retirement plan risks with other corporate goals and global competition, according to the 47-page report.

The SOA plans to sponsor a symposium with about 100 experts in September to further its initiative, she said.

“We realize neither defined benefit nor defined contribution fits the needs of the workplace” or plan sponsors as well as a retirement system should, Ms. Kessler said. This initiative “is the first step to understand what the system needs to achieve to meet the needs” of its stakeholders.

The SOA effort is examining retirement system models in relationship to needs, risks and roles of stakeholders contributing to or benefiting from the current system, including plan sponsors and participants as well as the financial markets and economy.

“We hope to build a consensus of where we want to go with a new retirement system,” she said.

Ultimately a new employer-sponsored system would require federal legislation “because the only things permitted in the tax code are DB and DC,” said Ms. Kessler. “The initiative will depend on the strength of the professional community to spur legislative changes,” she added. “How quickly the community responds will determine how quickly legislative changes can be promoted.”

Ms. Kessler said she couldn’t give a timeframe for completion, but she spoke of taking at least a couple years to work through issues.