BEST PRACTICES: Sustainable Funding Practices for Defined Benefit Pensions and Other Postemployment Benefits (OPEB) Flashcards
Governments should ensure that the costs of DB pensions and OPEB are properly measured and reported. Governments that sponsor or participate in DB pension plans, or that offer OPEB, should contribute the full amount of their actuarially determined contribution (ADC) each year.
What is the fundamental financial objective of government employers offering DB pensions and OPEB?
To fund the long-term cost of the benefits promised to participants in a systematic and disciplined manner during the active service life of the benefiting employees.
Why is contributing the full amount of the actuarially determined contribution (ADC) each year important?
To ensure that pension benefits are funded in a sustainable manner, supporting long-term investment performance and requiring lower contributions in the future.
What should a DB pension plan funding policy aim for?
A target funded ratio of 100 percent or more (full funding) with a fixed amortization period, outlining strategies for surplus management.
How often should actuarial valuations and experience studies be performed?
An actuarial valuation should be prepared at least biennially, and an actuarial experience study should be performed at least once every three years.
What is the role of an independent actuarial audit in plan sustainability?
To provide an independent assessment of the reasonableness of the actuarial methods and assumptions, ensuring the validity of computed contributions and liabilities.
How can ADC volatility be reduced?
By smoothing returns on assets over several years, diversifying the investment portfolio, managing investment returns long-term, and managing growth in liabilities.
What strategies should be developed regarding benefit enhancements?
All benefit enhancements should be actuarially valued and presented before adoption to understand their impact on liabilities, funded ratio, and contribution rates, ensuring financial sustainability.
How should ethical violations and benefit calculation abuses be addressed?
By designing the plan to prevent abuses such as salary spiking and adopting policies to safeguard against ethical violations, ensuring the system’s sustainability and public trust.
