Abstract
ABSTRACT Objective: this article proposes the meta atuarial consistente (MAC) (consistent actuarial rate), which is a method that adjusts incompatible actuarial rates in pension funds, after investigating and proving that the rate dissociates from the general rule in current regulations (which binds this rate to the expected return of the investments of pension funds). Methodology: a sample with data from 22 defined-benefit plans was collected, and MAC was applied to produce consistent actuarial rates, after panel data methods have identified the elements that influence the definition of the actuarial rate by the pension fund board of trustees. Results: the use of MAC, adjusting actuarial rates of 2018 based on systematic biases in previous rates, enabled a positive effect that unfolds in more reliable estimates for the plans’ mathematical provision, while identifying elements that influence the determination of the annual rate, causing its non-compliance to the general rule. Conclusion: the adoption of MAC by the Brazilian supervisory authority Previc would improve the rules and provide subsidies to better adjust the contribution levels practiced in the plans, making their solvency levels more reliable, which would benefit the development of the insurance and pension market.
Highlights
This article proposes a method to adjust the actuarial interest rate of defined-benefit pension plans (DB) to the general rule provided by current legislation, the consistent actuarial interest rate (MAC)
We argue that the meta atuarial consistente (MAC) proposal put forward in this study, built based on returns originated in an asset liability management (ALM) but applicable to returns originated in bond-based methodologies, is superior to the proposals and methods described in this reference since MAC offers periodical non-discretionary adjustments of rates defined by the pension fund’s board
We believe that the conditions offered for using the parameter rate, compared to the general rule, may inhibit a more significant performance when seeking returns on pension fund investments
Summary
This article proposes a method to adjust the actuarial interest rate of defined-benefit pension plans (DB) to the general rule provided by current legislation, the consistent actuarial interest rate (MAC). Since 2013, there are indications that the actuarial rate defined annually in pension funds was dissociated from the future returns on their assets. The method proposed in this study adjusts actuarial rates not aligned with the expected return on the pension funds’ assets after identifying elements that determined the choice of the pension funds’ actuarial rate in a specific period. MAC makes it possible to adjust the current process of defining the actuarial rate of pension funds — which, according to the research findings, is far from the parameters determined by current legislation. This research’s theoretical contribution lies in the results of the regressions and the adoption of MAC, reducing possible non-adherence of the rates to the returns of the pension funds’ financial assets
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