GAC-EPA — Groupement des Anciens du CERN-ESO Pensioners' Association

Announcement

Questions/Considerations Future of Pension Fund

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This page reproduces a list of questions input by a Member State Delegation(*) for further discussions with the Pension Fund's actuary.  These questions are referred to in a letter to the President of the CERN Council.

Questions and considerations regarding
the Future of the CERN Pension Fund

Our questions are grouped in “clusters” according to the main fields in which action can be taken to put the Pension Fund back on course:

  1. Investment return
  2. Contributions
  3. Benefits
  4. Possible combinations of corrective measures
  5. Transition form a “defined benefits” system to a “defined-contribution”-system
  6. Concluding questions

Impact calculations/scenario analysis/sensitivity analysis should be provided, where appropriate, along with calculations of probability of achievement of full funding of the Pension Fund by 2041

A) Investment return

Question 1:

If the financial markets remain uncertain and the economic situation deteriorates, the assumption of the return of investment of 3% annually (above Geneva inflation) or 5% annually respectively should be reconsidered. Could the Actuary provide a projection model and tell us the probability of the Fund not having achieved an investment return of the projected annual 3% above Geneva inflation or 5% in the long term in the period from 2013 to 2040?

Question 2:

Could the Actuary elaborate a projection model to identify what level of return of investment can be achieved from 2013 to 2040 with a probability of 70%, 80%, 90%, 100%? The projected funding level for each of the investment return levels associated with these probabilities should be included in this analysis.

Question 3:

The current estimates of the Actuary are based on the assumption of a constant return on investment of 3+2% (three percent return plus an estimated inflation rate of 2%). To what extent would the Actuary’s estimates regarding the funding level in 2041 change on the assumption of the following return rates above an assumed inflation rate of 2 %: 4%, 3%, 2.5%, 2%; 1.5%, 0%. In this context, a projection model should be presented considering the assumed return rates.

Question 4:

Can a concrete percentage figure be given indicating the margin of error in the outcome of calculating total returns from 2013 to 2041?

B) Contributions

Question 5:

To what extent would the results of the Actuary’s projections as contained in the table on page 5 of document n. CERN/FC/5782/RA resp. CERN/3088/RA change if the current employee’s contribution rate of active members to the Fund expressed as a percentage of their salary were raised from currently 12.64% to respectively 14, 16% or 18,96 % from 1.1.2015 (assuming the employer’s rate fixed at 18.96%)?

C) Benefits

Question 6:

How much would the maximum Loss in Purchasing Power have to be increased in order to achieve full funding by 2041? Or, alternatively, to what extent would the results of the Actuary’s projections as contained in the table on page 5 of document n. CERN/FC/5782/RA resp. CERN/3088/RA change if the current maximum Loss in Purchasing Power (LPP) were raised to 10 respectively 12 and 15% from 1.1.2015?

Question 7:

To what extent would the results of the Actuary’s projections as contained in the table on page 5 of document n. CERN/FC/5782/RA resp. CERN/3088/RA change if the maximum attainable pension after 37 years and 10 months of service were reduced from the current 70% to 68 respectively 65 and 60% from 1.1.2015?

Question 8:

To what extent would the results of the Actuary’s projections as contained in the table on page 5 of document n. CERN/FC/5782/RA resp. CERN/3088/RA change if deductions currently applied to the pensions of employees taking retirement earlier than at the age of 67 were raised by a quarter respectively by half from 1.1.2015?

Question 9:

What would be the impact on the projected funding level by 01/01/2041 if from 1.1.2015 pensions would be reduced by 1%, 3%, 5%?

D) Possible combinations of corrective measures

Question 10:

Based on the experience and best judgement of the Actuary, could he suggest a package of measures (focussing on the measures mentioned and always leaving the amount of the Special Contribution unchanged) which could reasonably be expected to restore full funding by 2041 (including, if possible, a quantification of the likelihood of attaining the aforementioned objective)?

Question 11:

In addition, the outcome of potential combinations of measures should be presented which due to their impact on the funding status by 2041 could replace the Special Contribution of 60MCHF annually: (1) increases in the maximum Loss of Purchasing  Power as outlined in question 6; (2) adjustment of pensions as outlined in question 9, (3) increases in contributions by members as outlined in question 5.

The advantages/disadvantages/trade-off between the elements of each combination of the measures mentioned have to be clear and a scenario analysis should be provided.

E) Defined benefits vs defined contributions

Question 12:

In the Actuary’s judgement, which would be the actuarial and risk impacts of closing CERN’s current defined benefit pension scheme to newly hired CERN employees from 01.01.2015 onwards, and of applying a defined contribution scheme for them instead? The basic assumption for this scenario should be one where the amount of current regular contributions as well as current rules on pension benefits for staff having joined CERN before 01.01.2015 remain unchanged and the special contributions by CERN and ESO would continue to be provided on the level currently foreseen. The scenario analysis should provide a probability risk assessment for the residual defined benefit scheme (for current employees) achieving/restoring full funding by 2041 in such a scenario. In this context, the risk for CERN and ESO should be quantified with regard to a potential increase of the Special Contribution to restore full funding, should no additional measures be applied.

Question 13:

If the calculations requested under questions 13 and 14 should give reason to believe that in such a scenario, full funding under the defined benefit scheme for current employees will not be achievable by 2041, could the Actuary draw up a proposal for a package of measures (focussing on the measures mentioned and always leaving the amount of the Special Contribution unchanged) which could reasonably be expected to restore full funding by 2041 (including, if possible, a quantification of the likelihood of attaining the aforementioned objective)?

Question 14:

For comparison and better understanding of the different assumptions, the Actuary should also examine the actuarial and risk impacts of closing the defined benefit scheme to all members (including existing members) from 1.1.2015 onwards and of moving all the members to a defined contribution scheme: In this scenario the assumption would be the same as the current regular contributions to the currently existing defined benefit scheme; the special contribution by CERN and ESO would stay at the same level. Under this scheme, the outcome of an impact calculation for a potential combination of measures which could achieve full funding by 2041 without any increase of the special contribution should be provided for the following measures (1) increases in the maximum Loss of Purchasing Power as outlined in question 6; (2) adjustment of pensions as outlined in question 9, (3) increases in contributions by members as outlined in question 5. A scenario analysis combining potential sets of measures to restore full funding by 2041 should be presented.

F) Concluding questions

Question 15:

Could the Actuary provide information on the confidence level of achieving full funding of the Pension Fund by 2041? How probable is this objective considering the results of the review? What is the meaning of 'best estimate' in terms of probability? Could the actuary describe what would be a confidence interval of the projected funding ratio in 2041? Can the range of results shown in the table on page 5 be considered a confidence interval of the results?

Question 16:

The present review does not consider the discount rate in the required depth. The sensitivity analysis should include a more detailed analysis on the discount rate and its crucial influence.

Question 17:

The graph on page 21 of the Actuary’s report regarding the projected funding level is indicating percentages for the funding ratio with absolute numbers being indicated below for the amount of the projected shortfall. Could the Actuary also indicate the absolute numbers for the projected total amount of assets resp. liabilities in both of the scenarios and explain the differences between the two scenarios underlying the graph and the scenarios used for establishing the table on page 19 of his report?

Question 18:

The cover letter contained in document n. CERN/FC/5782/RA resp. CERN/3088/RA states that a funding ratio of 85% by 2041 would still be considered sufficient for Swiss public pension funds.

Could we have more information on the assumptions and legal conditions in Switzerland under which this statement is valid (for instance the possible assumption of the existence of a pension system based on several pillars or the assumption of a state guarantee to make up for any shortfalls in one or several of these pillars) and could the Actuary be asked for his opinion of the sufficiency of a 85% funding ratio in view of these assumptions?

Question 19:

Could the Actuary, based on his best assumptions, elaborate a package of measures (regarding members’ contributions as well as benefits) that can reasonably be expected to ensure that the Pension Fund funding level can be kept at 100% after 01/01/2041 without further Special Contributions from Member States?


* The name of the Member State has been deliberately omitted.

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