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QBS 15 Multi-employer plans RISKS - Coggle Diagram
QBS 15
Multi-employer plans
RISKS
Common risks
1) Int rate risk
2) Inflation risk
Asset classes that provide hedging
1) real return bond
2) real estate
3) infrastructure
Caveats
1) illiquid
2) prices may be volatile
3) Inadequate margin
4) Decline in hours
Triggers
1) reduce ability to fund deficits
2) increase early ret subsidies costs
3) increase LS costs
4) increase CF requirements
5) Increase pop aging
5) longevity risk
6) Intergenerational transfers
How to analyze ?
:Proportion of cont not towards NC
7) Regulatory risk
9) communication risk
8) Agin demographics
How to mitigate costs?
use methods such as EAN
10) investment policy
should be aware of:
1)
will influence the asste return volatility
2)
should consider the extent to which policy is consitent with plans maturity level
3)
should be aware of asset liability mismatch and potential impact
11) plan design
Ways to mitigate
tie benefit accrual rate to cot levels
12) plan benefit
1)
experience losses can arise if provide subsidies (ERA, Disab or CV)
2)
magnified during a workforce downturn where utilization increases and funding decreases
13) withdrawal of key ER
Plans subject to leverage risk
: 1) cyclical industries 2 ) plans providing enhanced benefits
Risk management tools
Better asset liability matching
Ways of reducing asset-liability mismatch
1) reduce equity allocation
2) increase duration of bond allocation
3) apply immunization tools
duration matching
cash flow matching
annuitization of retired
Downside
1) level of benefit lower (moins de rdm)
2) Nominal bonds don't protect against inflation
Margins
Methods of creating margins
1) create margin in actuarial assumptions
2) establish a non-specific liability or reserve
3) specifiy range between cont and NC
Best practice
1) increase in good times
2) decrease in bad times
3) margin level should be function of asset AL mismatch exposure
target margin level needs to be approp
margin may be inadequate if population is aging
Adjust benefits
Asset smoothing