1. Adriaan Bloem, IMF John Ruser, BEA Co-chairs
Report on the Meeting of the Task Force on Employers’ Retirement Schemes Washington, DC September 21-23, 2005
Adriaan Bloem, IMF
John Ruser, BEA
Co-chairs

2. Origin of Task Force
At December 2004 meeting, the Advisory Expert Group on National Accounts (AEG) asked for a task force (TF) to prepare AEG’s further discussion on recording pension funds in the national accounts
That TF would prepare a discussion paper for the AEG’s meeting in January 2006

3. Task Force planning IMF and BEA put together the TF
Drafted a Terms of Reference (TOR)
Circulated TOR for comments among the Inter-secretariat Working Group on National Accounts (ISWGNA)
After some discussion the ISWGNA agreed
Focused TF on defined benefit pension schemes
Some discussion of defined contribution schemes and the borderline with social security
Invited participants for the TF, asking them to draft discussion papers on the topics identified in the TOR
Task Force meeting held in Washington, DC from September 21 to 23, 2005

4. Task Force participants
IMF and BEA co-chairs
Representatives of international organizations
ECB, Eurostat, IMF, OECD, UN, World Bank
Country representatives
Australia, Canada, Denmark, India, Netherlands, Sweden, USA
US pension actuaries

5. What are employers’ pension schemes? TF Conclusions
Schemes set up to provide retirement benefits to participants, based on employer-employee relationship
Funded, unfunded, or over- or under-funded
May or may not be mandated by government
Autonomous or non-autonomous
Autonomous schemes involve institutional units separate from employers
Non-autonomous schemes are managed by employers, with or without segregated reserves

6. 1993 SNA treatment of pensions
Output
Autonomous pension schemes: measured separately
Non-autonomous schemes : not recorded separately
Ancillary to employer’s main output
Employers contributions (part of compensation):
Funded schemes: actual contributions
Unfunded schemes: imputed
In principle, SNA recognizes imputation should be based on actuarial considerations
In practice, SNA suggests using benefits paid in current period

7. 1993 SNA treatment of pensions
Employee contributions
Recognized for all pension schemes
Property income
Attributed to beneficiaries
Only recorded for funded pension schemes
As investment return on fund assets (insurance technical reserves)
Investment return includes only property income, not holding gains
Anomalous treatment of interest-bearing versus non-interest bearing securities

8. Shortcomings of 1993 SNA treatment
Output from non-autonomous funds ancillary to main employer activity
Fails to recognize that pension schemes provide services to beneficiaries, not employers
Estimating employer contributions based on amounts paid
SNA does not do this for any other liability
Employers’ contributions should reflect liabilities to employees, regardless of funding
PV of future pension benefits from service in current period

9. Shortcomings of 1993 SNA treatment
SNA internally inconsistent
Compensation of employees in income account includes imputed employer contributions for unfunded schemes
But, the concomitant assets/liabilities related to future benefits are not recognized in the financial accounts or balance sheets
In contrast, such assets and liabilities are recognized for funded schemes
Under- and over-funding is not recognized as an employer obligation or claim

10. Output – TF conclusions
There is output for both autonomous and non-autonomous funds
Output of pension funds should be measured at cost
Including the full management cost of any insurance company managing a fund
Output is consumed by the beneficiaries (i.e. households)
More work required to determine if the output of autonomous pension funds should be based on actual or expected transactions and holding gains/losses

11. Property income – TF conclusions
The value of property income should be
The expected property income on the accumulated value of benefits (due to the unwinding of the discount of these benefits)
Plus the service charge for funds management
For autonomous funds: The fact that some property income may be funded from holding gains is not a reason to exclude this amount

12. Developing actuarial estimates
Actuaries develop estimates from
Information on individual workers and pension plans
External information (e.g. discount rate)
Actuarial standards require that the discount rate be based on high quality bond rates relevant to employer and with relevant time to maturity
Present value of pension liabilities is sensitive to discount rate

13. Developing actuarial estimates
There are a number of different valuation approaches
Projected benefit obligation (PBO)
Part of total pension benefits employee will earn during entire career, due to years of service to date
Accrued benefit obligation (ABO)
Calculated for years of service to date based on current wage and salary rates
PBO > ABO, with large difference in early years decreasing towards retirement date

14. Developing actuarial estimates TF conclusions
The accumulated value of benefits should only be calculated based on service to date (ABO)
Should not take projected future wages and salaries into account (PBO)
PBO estimates could be provided in memoranda
The value of household pension assets is consistent with the actuarial value of the employer’s liability to provide future retirement benefits
Due to service provided to current date

15. Actuarial and accounting standards TF conclusions
Professional practice confirms the consistency of actuarial estimates and accounting conventions
Accounting conventions are likely to move from including PBO to ABO based estimates in the balance sheet
PBO based estimates are expected to continue to be available

16. Discount rate - TF conclusion
An acceptable discount rate would be the interest rate on high quality securities relevant to the sponsor of the pension scheme

17. Multi-employer schemes TF conclusions
A multi-employer defined benefit pension scheme typically assumes the liabilities of all employers within the scope of the scheme
In that case, an employer does not incur any further liabilities once it has joined the scheme, apart from regular contributions to the scheme, until he withdraws from the scheme

18. Pension scheme sectoring TF conclusions
Autonomous schemes
Include in the pension subsector of the financial corporations sector
Non-autonomous schemes
Include in the sector of the sponsor
Unless, quasi-corporations can be established for funds
In which case they are sectored the same as autonomous funds

19. Recording issues - papers
Four papers were presented, with different proposals for the recording of pensions
Brian Donaghue (consultant, IMF)
Record both funded and unfunded pension schemes in the core accounts
Record based on actuarially-determined accrued liabilities
Reimund Mink (ECB), Dieter Glatzel (Eurostat)
Leave core accounts unchanged
Record unfunded pension schemes and social security identically in supplementary accounts

20. Recording issues - papers
François Lequiller (OECD)
A compromise between the two previous positions
Incorporate unfunded pension schemes in the core accounts
Treat stocks and flows of unfunded schemes separately from funded schemes
leading to alternative balancing items
Keep stocks and flows of social security outside core accounts
Include an estimate of contributory social security liabilities in supplementary accounts
Record pension liabilities associated with government employees in the core accounts regardless of label

21. Recording issues – TF conclusions
A clear majority of the task force recommended the following:
All pension liabilities of employers should be recognized, irrespective of the degree to which the schemes are funded
Stocks and flows of all pension schemes should be recorded in the core accounts
Specific guidance needs to be given to so-called “notional defined contribution” schemes
Recognizing practical problems and user needs, stocks and flows of funded and unfunded schemes should be separately identified

22. Social security borderline TF conclusions
Social security is essentially a redistributive process imposed and controlled by government
benefits provided are not directly linked to the size of contributions
Some governments operate schemes which combine this basic social security function with what is effectively a multi-employer pension scheme
The criteria for distinguishing basic social security from employer-related pension schemes need to be reviewed as a matter of urgency