# Pension Actuaries...



## RedRose (Aug 2, 2011)

If these people administrate the pensions as in my case PostMedia uses Mercer.
How does one find out how strong the Actuary company is? Any Gov't protection of the said pension.
I am now on the side of taking the pension, still mulling this decision over.
Just want to make sure I am making the right choice.


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## sags (May 15, 2010)

When I was nearing the cutoff age of 55, I enquired about the commuted value of my pension.

In view of the monthly benefits I would receive, the number for the commuted value wasn't even close.

The commuted value was less than 7 years of pension payments, so I would have run out of money by age 62.

I took the pension payments, and it is now 6 years later. Instead of being broke in a year, I still have a lifetime of pension payments, my spouse has her lifetime of spousal benefits, the benefits will rise over time due to indexing, and I remain within the pension plan which entitles me to a free $75,000 life insurance policy.

I found out that in my case, the administrator didn't have a professional actuary perform the calculations, but a clerk in their office.

Calculate how long the commuted value would equal in monthly payments and it will give you a fair idea of if the numbers are correct.

One factor is the financial status of your pension plan, but bear in mind that if it is underfunded, your commuted value would be reduced to reflect the underfunding. 

Google actuary or pension accountants........you should find someone in your area who can advise you.


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## Saniokca (Sep 5, 2009)

I work in the actuarial field. 

1) If your plan is big enough, the values are calculated by a software. The "clerk" just pushes some buttons and prepares the package. Then someone with experience checks it for reasonability (the software was tested already).

2) "In view of the monthly benefits I would receive, the number for the commuted value wasn't even close." 
Close to what? Unless you are an actuary, read the plan text and know pension rules you cannot say whether the calculation was correct or not. It's like me telling my doctor he is wrong... I might be right but he's the one with the prescription pad.

3) "Calculate how long the commuted value would equal in monthly payments and it will give you a fair idea of if the numbers are correct." 
INCORRECT. It will give you an idea what is better for you. Imagine that 7 years ago you expected to live for 5 years only. Would you still have chosen the pension?


4) "One factor is the financial status of your pension plan, but bear in mind that if it is underfunded, your commuted value would be reduced to reflect the underfunding." 
INCORRECT. If the aggregate commuted values (CV) payouts in a year exceed a certain amount, then to pay out the whole thing the firm needs to contribute the unfunded portion. i.e. if plan is 70% funded and your CV is 100k, employer must put in 30k). Otherwise they give you the 70k and the 30 over 5 years (can't remember exactly but should be close). Although personally I would opt for the pension, if the plan is poorly funded I might consider taking the money out (what if your company goes bankrupt tomorrow?). Only the first $1000/month is guaranteed by the government.

Do I sound defensive or what


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## sags (May 15, 2010)

Welcome to the forum.......it's nice to have a few experts around......

What I meant by "not even close" was.............

I was retiring at age 55, with an unreduced pension of 2500 a month until the age of 65, when it would be reduced to 1800 per month for life. Should I die before my wife, she is guaranteed a spousal pension of 1200 a month for her life. The pension is indexed to the cost of living, includes a $75,000 life insurance policy and a health benefits plan.

The commuted value offered was $230,000

As can be readily seen, during the 10 years from age 55-65.......I would collect 300,000 from monthly benefits, so the commuted value was insufficient to replace benefits even to age 65, let alone consideration for the value of the spousal benefit, indexing, $75,000 life insurance policy, and health plan coverage. 

Acceptance of the commuted value, would have meant that I had to agree to sever all ties with the company, and would have lost all future benefits to retirees.

I don't know how they did the calculations, as they wouldn't provide the documentation, and I simply ran out of time arguing with them before I had to make the decision. 

I did have a short opportunity to discuss it with a private fund manager, who often deals with teachers who commute the value of their pensions. With the numbers I gave him, he said the commuted value should be, less than but close to, the values that he sees all the time from teacher pensions......around $800,000

So........like I said.......it wasn't even close.


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## sags (May 15, 2010)

_INCORRECT. It will give you an idea what is better for you. Imagine that 7 years ago you expected to live for 5 years only. Would you still have chosen the pension?_

You are correct. If I knew the exact date of my death, I may take the commuted value if it was financially beneficial, but since I was age 55, with no serious health related problems, would not the actuarial assumptions be that I would live to the average age.......as per the longevity tables?

In any event, the 7 years will be up next year. Had I taken the commuted value, I would be preparing how to live with $2500 less a month for the rest of my life, beginning at age 62, my wife would be without a 1200 a month spousal pension guarantee, and we would both be without health benefits or life insurance.

Had I invested the capital in the stock market, I would probably already be living back with my dad as a "boomerang retiree".


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## Saniokca (Sep 5, 2009)

Glad to be here! I usually post in the money diaries section...
Going to pick a bit more on you 
Do you ask an eye doctor if your dentist pulled the correct tooth?
Another issue that might be very relevant: If I understand correctly, you asked for the CV you would get BEFORE reaching 55 correct? I've seen many pension plans where one day makes a huge difference. For example: if you leave 1 day before you turn 55 (i.e. not eligible to retire) your commuted value will be based on pension you are entitled to starting age 65. When you leave at age 55 the rules are different, now you are eligible to retire. That means you are entitled to a "bridge" ($700 in your case) and possibly a much more generous reduction. That bridge alone would cost approx 75k... generous pension reduction would be worth even more. There's also a possibility that indexing doesn't kick in unless you retire - this is very expensive...

Some plans allow you to take money after 55 and some don't. There are many reasons for either approach. Lately I've seen a lot of plans that amend plans to allow commutation.

"would not the actuarial assumptions be that I would live to the average age.......as per the longevity tables?"
They would. It was just an example that hindsight is 20x20 

In light of what I said above you obviously made the right (and really only) choise...


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## MoneyGal (Apr 24, 2009)

a "generous reduction"?


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## Saniokca (Sep 5, 2009)

It sounded odd when I first heard it too.

A reduction of 15% is more generous to the employee than 30%.


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## andrewf (Mar 1, 2010)

More favourable probably conveys the meaning better.


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## sags (May 15, 2010)

Thanks for the response, 

Yes, you are correct that I had to take the commuted value before age 55, and became pension eligible at age 55.

Your answers put into question the often used phrase that a commuted value is calculated to equal the value of the benefits from the pension plan.

Clearly, that assumption may not be true, depending on the pension plan.


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## MoneyGal (Apr 24, 2009)

Well, I thought about commenting on that wording earlier, but did not. 

The commuted value is typically the present value of the pension assets that,_ if invested at a certain rate of interest until your normal retirement age_, would be sufficient to provide the income that would have been provided by the pension, assuming you live to the average life expectancy for your age cohort. 

The commuted value will fluctuate based on your age, inflation rates, interest rates, and years to retirement, as well as based on the longevity of your age cohort. 

The commuted value, if taken prior to normal retirement age, will never be "enough" to purchase the same guaranteed lifetime income stream at retirement. There will always be an interest or earnings assumption built in.


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## Saniokca (Sep 5, 2009)

"Clearly, that assumption may not be true, depending on the pension plan."

Not exactly.
The commuted value is equal to the value of the ACCRUED benefits. Before you reach 55 you are not entitled to a bridge or a more favourable reduction. Think about a non-cashable 10 year GIC - if you ask for your money a day before it matures you won't get any interest. The timing of when your entitlement depends on the pension plan.


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## sags (May 15, 2010)

Thanks.......that explains it well.

Well there you go Rose.......if you are still looking at this thread.

You can see how complicated this all gets.

Take MoneyGal's advice and seek advice from a professional.


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## Saniokca (Sep 5, 2009)

My one last comment is when you seek a professional ensure that they don't have a vested interest in you taking the money out. That is, they won't be getting a commission for "taking care" of your money. I can run all kinds of pretty numbers and make even sags's CV look better than the pension...


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## MoneyGal (Apr 24, 2009)

Like, for example, this guy: http://www.williamjack.ca/


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## RedRose (Aug 2, 2011)

Oh Wow! Thank YOU All for your contributions to this thread. Now I know why my head is still spinning. This is not an easy no brainer. Sheesh! 
unless I am missing something here?

My late husbands commuted pension value I have been offered equals about 14 yrs of pension I am 63 this month, so that's till I am 77. I am in good health but one never knows.

*Saniokca,* How safe is a pension these days? Is it better to transfer the commuted value to another annuity and how safe are those? The average mind boggles at all this especially at a low time in ones life.

I have searched for an independent actuary and they all work with CFP's which are all tied to investing. 
I have 2 appts. next week that incur a couple of hundred $$$ fees so I hope the advice and statements they prepare are useful. I have learned way much more on this forum than ever, which makes me delve even deeper. I know I need to make this decision as time will run out eventually.


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## the-royal-mail (Dec 11, 2009)

Glad to see you getting the help you need RedRose. There is no question that this forum is a powerful tool if used properly. As I am sure you have noticed, most people here are happy to help you.

I spoke to a now-retired friend of mine last night. The way he explained this is that everyone (CPP, RRSP, pension etc) operates in isolation and are knowledgeable in their piece of the pie. The only one who can/will put all the pieces together is you. The risk is that doing something in fund A may affect fund B. That's why forums such as CMF are so powerful as it allows those who have been through it before to warn etc.

Good luck.


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## MoneyGal (Apr 24, 2009)

RedRose said:


> Oh Wow! Thank YOU All for your contributions to this thread. Now I know why my head is still spinning. This is not an easy no brainer. Sheesh!
> unless I am missing something here?
> 
> My late husbands commuted pension value I have been offered equals about 14 yrs of pension I am 63 this month, so that's till I am 77. I am in good health but one never knows.
> ...


1. Your probability, as a healthy woman aged 63, of living beyond age 77 is almost 80%.

2. If you are worried about the "health" of your pension you can buy an annuity or more than one annuity. However, you can expect these to be much more expensive than the DB pension. That is, if you take the DB pension funds and purchase annuities privately, you will not be able to buy as much lifetime income. 

3. Independent actuaries - I have linked twice to different independent actuaries in threads you have started. One immediately before your last post. They are out there.


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## carverman (Nov 8, 2010)

sags said:


> _INCORRECT. It will give you an idea what is better for you. Imagine that 7 years ago you expected to live for 5 years only. Would you still have chosen the pension?_
> 
> You are correct. If I knew the exact date of my death, I may take the commuted value if it was financially beneficial, but since I was age 55, with no serious health related problems, would not the actuarial assumptions be that I would live to the average age.......as per the longevity tables?


Well here is a link to acturial longevity tables..if you can understand greek (math formulas) then it might be simpler to make those choices..but in the end, no matter what..you just can't take it with you. 

http://www.actuaries.ca/members/publications/2010/210028e.pdf

I once talked to an insurance agent about life insurance and he mentioned that the "rule of thumb" (average median?) life expectancy for males (healthy non-smokers) is *around 79* and for women(healthy non-smokers) 80...after that the statistics drop off rapidly and it depends on the individuals luck... or luck finally running out.

It's a crude way of expressing it..but that's what I'm basing my decisions by...I'm 65 with a health issue and for me ..if I can get through the next 10-15 years..I'll be a lucky man..er... carverman.


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## fraser (May 15, 2010)

Keep in mind that a portion of the commuted value may have to be taken into income and thus taxed immediately. I rec'd a DB statement this week which indicated that approx. 60% of the communted value could be rolled over. It may get worse because I discovered that the monthly DB amount was understated by 14 percent. Now waiting for the revisions.


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## RedRose (Aug 2, 2011)

Sorry *Money Gal,* I must have missed those links. My head has been so stressed and anxious with all this. I didn't understand what they were. I will have to go back and check where I posted.
Thanks for alerting me to this and everybody elses kindness. It is much appreciated.


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