Modeling Approaches for Pension Plan Turnover Rates

Background and Purpose

Analyzing turnover rates for a pension plan is an important aspect of pension plan management and risk assessment. Turnover rates can provide insights into the stability and financial health of a plan, as well as help plan administrators make informed decisions. In 2003, the Society of Actuaries Research Institute published a series of turnover (termination and retirement) tables for the actuarial valuation of pension plans. Accompanying the tables was a report detailing the analysis of the data and methods used to develop the tables. In addition, a summary report providing practical guidance on the usage and interpretation of the tables was included with the material.

With the passage of twenty years since publication of this material, the Society of Actuaries Retirement Section Research Committee (RSR) would like to take a fresh look at approaches for creating similar tables and how they may be applied. One motivation for this effort is to consider advances in modeling since 2003 and factors that may lead to more robust rate tables with the goal of enhancing pension plan analysis. A second motivation is to respond to emerging trends in retirement income plans, with fewer open defined benefit pension plans sponsored by private sector employers and greater interest in other types of enterprise-sponsored economic security plans. To keep the scope manageable and expedite completion, the work is not intended to initiate a new collection of data from applicable plans.

Research Objective

The Society of Actuaries Retirement Section Research Committee is seeking researchers to explore new modeling approaches for creating pension plan turnover tables. Respondents are not required to address all of these and may be selective in the areas they cover. However, proposals should clearly identify which aspects will be covered.

1. Applications of Turnover Rates – Turnover rates are applied to the estimation of obligations and annual service costs in existing pension plans and retiree health plans. They are also used to determine amortization periods under U.S. GAAP, in workforce planning, and in the design of employee compensation and benefit plans intended to attract and retain high-performing employees. What other current and potential uses are there for turnover rates? How should these diverse applications influence the structure of tables and predictive models?
2. Data Collection – What data elements could be collected from pension and other employment-based plans that might enhance modeling of turnover rates, such as salary progression, workforce performance ratings or reason for termination of employment? What ways can cohorts or specific groups be selected for analysis to better segment the data for predictive modeling purposes?
3. Turnover Rate Calculations – What are differing ways for the actual turnover rate calculations and formulas used that may lead to more robust tables? What might be additional formula elements?
4. Modeling Techniques – What modeling advances such as artificial intelligence can be applied to turnover rate calculations and table creation? What impact would they have made on previous table creation?
5. Analyze Trends – In some situations, long-term patterns of turnover are highly influenced by curtailments due to economic cycles or other business events. How can new modeling techniques be used to better analyze rate trends over time and to predict the turnover that would occur in the absence of special events? What are ways to identify patterns or anomalies in the data?
6. Segment Analysis – For table creation, what are potential ways to better segment the data for modeling purposes? How should actuaries adjust their approaches for multiemployer pension plans, union plans, broad public sector plans, and other situations where termination of active membership in a pension plan is distinct from termination of employment?
7. Benchmarking – How might an employer use modeling techniques to benchmark its rates against peers or industry studies? What additional insights may be learned from such benchmarking for modeling purposes?
8. Identifying Causes – How can modeling approaches help to better understand the causes of voluntary and involuntary turnover and the reasons for surges in turnover or unexpected persistency? For example, will the growing importance of capital accumulation plans relative to traditional pension plans lead to correlations between turnover and stock market performance?
9. Plan Design and Retirement Patterns – Traditional defined benefit plans often provided subsidized early retirement, and observed patterns of retirement were heavily influenced by those subsidies. When a DB pension plan is frozen and replaced by a DC plan, the effect of the retirement subsidy on retirement patterns can be expected to diminish over time. Is there a way to interpret past patterns in a way that will transcend this sort of change in plan provisions? For example, can the probability an individual will remain in employment be expressed in terms of their overall retirement income replacement ratio, rather than in terms of the defined benefit plan age and service requirements alone?
10. Stress Testing - To what extent can modeling approaches be used to conduct scenario and stress testing on a plan’s funding status in regard to turnover rates? What risks can it help reveal and steps to mitigate them?
11. Communication and Reporting - How can modeling approaches be used to better communicate the effect of turnover rates on the plan’s status to relevant stakeholders including plan sponsors, participants, and regulatory authorities?

Note: Turnover data from previous SOA Research Institute studies is potentially available for testing purposes. The applicability and usability of this data for a particular proposal is the responsibility of the researcher to determine. For more information on data availability, please contact Research-AR@soa.org

Proposal Requirements

To facilitate the evaluation of proposals, the following information should be submitted:

1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
   
   
2. An outline of the approach to be used (e.g., literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
   
   
3. A description of the expected deliverables and any supporting data, tools or other resources.
   
   
4. Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
   
   Please note that as a policy, the SOA Research Institute generally does not provide funding to cover academic institution overhead expenses.
   
   As a guide for developing the project budget, please review the Historical Project Cost Guide (see Appendix)
   
   
5. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The sponsors are interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
   
   
6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

Selection Process

The sponsors will appoint a Project Oversight Group (POG) to oversee the project. The sponsors are responsible for recommending the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the sponsors will make the final recommendation, subject to Society of Actuaries Research Institute (SOA) leadership approval. An SOA staff research actuary will provide staff actuarial support.

Questions

Any questions regarding this RFP should be directed to Research-AR@soa.org.

Notification of Intent to Submit Proposal

If you intend to submit a proposal, please email written notification by February 7, 2024 to Research-AR@soa.org.

Submission of Proposal

Please email your proposal to Research-AR@soa.org; proposals must be received no later than February 26, 2024. It is anticipated that all proposers will be informed of the status of their proposal by the end April 2024.

Conditions

The selection of a proposal is conditioned upon and not considered final until a Letter of Agreement is executed by both the Society of Actuaries Research Institute and the researcher.

The Society of Actuaries Research Institute reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The Society of Actuaries Research Institute also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries Research Institute plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The Society of Actuaries Research Institute may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the Society of Actuaries in publicizing or promoting the research and responding to media requests.

The Society of Actuaries may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by the Society of Actuaries Research Institute, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.

Conflict of Interest

You agree to disclose any of your material business, financial and organizational interests and affiliations which are or may be construed to be reasonably related to the interest, activities and programs of the Society of Actuaries Research Institute.

Appendix

The cost ranges below are intended as a guide for budgeting project costs for proposals in response to SOA Research Institute Request for Proposals (RFP). Please note these figures span the 33rd to 66th percentiles for all projects as well as projects that involve a specific approach (lit review, survey, etc.). They are based on historical costs over several recent years. Expected costs for some RFPs may fall outside these ranges depending on the nature of the work and resources required for completion.

All Contracted Projects

This category includes all contracted projects that the Institute has undertaken within the last several years.

The 33^rd-66^th percentile project costs range is $25,000 - $50,000.

Literature Reviews

This category includes projects that involved only a literature review or the cost for the portion of a larger project that included a literature review.

The 33^rd-66^th percentile project costs range is $15,000 - $20,000.

Surveys

This category includes all projects that had a survey as their primary component. The 33^rd-66^th percentile project costs range is $28,000 - $55,000.