1. CIA Annual Meeting LOOKING BACK…focused on the future

2. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 1 Discipline and the Pension Actuary Robert J. McKay June 28, 2005

3. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 2 Agenda Bottom Line Refresher on Discipline Process The Statistics Case Studies How to Keep Off the CPC’s Agenda

4. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 3 Bottom Line About 2 actuaries per year are sanctioned Only 25% of cases produce sanctions Pension area has most discipline issues

5. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 4 Discipline Process—Begins CPC receives a complaint Can lay a complaint itself

6. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 5 Initial Screening After preliminary review, CPC may either: Dismiss complaint or Appoint Investigation Team

7. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 6 IT Report Based on the IT report, CPC may either: Dismiss complaint (with or without letter of advice) Charge and issue a private admonishment Charge and offer plea with recommendation of sanction (fast track) Charge and refer to public Disciplinary Tribunal

8. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 7 Sanctions Available (Private admonishment) Public reprimand Suspension or expulsion from CIA Refresher training Fine and/or costs Combination of above

9. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 8 Current Complaints As of April 30, 2005, ten complaints against seven members: Life:3 Pension:7 P&C:0 Workers’ Compensation:0 Actuarial evidence:0

10. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 9 Past Complaints Since 1992 98 cases completed 50 dismissed 48 referred to Investigative Teams 26: no charges filed 22: charges were filed

11. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 10 Of the 22 Cases With Charges 3: private admonishment 7: fast-track 12: disciplinary tribunal appointed 1 not guilty 11 guilty of some or all charges

12. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 11 Frequent Issues in Complaints Sloppy work Cosigning/peer review MEPP Wind ups Work outside area of expertise Expert witness/actuarial evidence Ethics

13. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 12 How We Learn of Problems Regulators Rule 13 Plan members/sponsors Legal proceedings

14. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 13 Do All Errors => Discipline? No We all make mistakes/oversights Rectification under Rule 13

15. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 14 Do All Errors => Discipline? Discipline Negligence Numerous mistakes/pattern of sloppy work Financial loss (potential or actual) Magnitude of errors

16. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 15 Do All Errors => Discipline? Discipline Violation of Standards Ethical issues Hide errors

17. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 16 Case 1—Issue Surplus overstated in wind-up report Plan ran out of money

18. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 17 Case 1—Why Charged Data checks not sufficient In transit benefit payments missed AVCs missed Deferred pensioner missed Review of results was insufficient Inadequate disclosure of data sources and checks

19. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 18 Case 1—Charges Rule 1: Skill and care Rule 3: Follow standard of practice

20. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 19 Case 1—Result Pleaded guilty and accepted a public reprimand

21. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 20 Case 2—Issue Incorrect determination of wind-up status

22. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 21 Case 2—Why Charged Minimum transfer values did not comply with Recommendations Former methodology used in some cases Inadequate disclosure of assumptions, methods, checks, etc. No statement as to data, assumptions, methods, etc.

23. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 22 Case 2—Charges Rule 1: Responsibility to public Rule 1: Skill and care Rule 3: Follow standard of practice Rule 15: Disclosure Violated recommendations

24. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 23 Case 2—Result Pleaded guilty and accepted: Public reprimand Fine and costs Two year peer review

25. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 24 Case 3—Issue Multiple errors in MEPP valuation report (DB and DC benefits)

26. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 25 Case 3—Why Charged Insufficient documentation No evidence of data checks No working papers on account balance calculations No working papers on contingency reserve

27. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 26 Case 3—Why Charged Other actuary could not use report (multiple errors/lack of clarity) Contribution requirements Treatment of expenses Indexed and unindexed pensions aggregated Fund returns and interest credits differ Gain and loss obviously wrong

28. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 27 Case 3—Why Charged Surplus overstated by $1.5 million Liabilities reduced for asset impairment Assets not reduced “Error so basic…”

29. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 28 Case 3—Charges Rule 1: Responsibility to public Rule 1: Skill and care Rule 3: Follow standard of practice Old Rule 15: Disclosure Numerous other charges related to work as an insurance Appointed Actuary

30. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 29 Case 3—Result Guilty of violating Rule 1 in four instances “Evidence showed multiple breaches of other Rules”

31. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 30 Case 3—Result Serious lack of competence Grave failure to apply professional standards Repeat offender

32. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 31 Case 3—Penalty 3 year suspension Comply with CPD requirements for readmission Significant costs

33. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 32 Case 4 Issue Failure to disclose commission payments Charges Multiple Rules cited in charges

34. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 33 Case 4—Result Guilty of all charges One year suspension $10,000 fine $140,000 costs

35. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 34 How to Keep Off CPC’s Agenda Get all work peer reviewed Review Standards of Practice regularly If something is new to you—ask for help

36. CIA Annual Meeting Session 2302- Professional Conduct Issues in Pensions LOOKING BACK…focused on the future 35 How to Keep Off CPC’s Agenda If you are new to a case/firm—spend more time If you co sign a report—it’s yours If you discover a problem—discuss with other actuary—Rule 13