NICOLETTE JENEZ

1
PENSIONS SUPERVISIONThe Jamaican Experience
2
PENSIONS LANDSCAPE

• 500 Pension Plans
• 70,000 plan members
• 200 Billion in assets
• 2000 Trustees
• 26 Administrators
• 26 Investment Managers

3
Industry Statistics
4
Industry Statistics
5
The Introduction of the Legislation
Phase I
Phase II

• Already passed
• The Act March 1, 2005
• Regulations March 30, 2006

• Not yet passed
• To protect the interest of
• members
• Will address among other
• things vesting, locking-in
• and portability

6
Regulatory Framework
7
Registration and Licensing
Fit and Proper Assessment

• Honesty
• Integrity
• Reputation
• Competence
• Capability

• Financial soundness
• In the case of corporate trustees
• Knowledge and experience in the business of
  pension plans are evaluated

8
Registration and Licensing

• Business and Financial Appraisal
• Financial statements and actuarial valuation
  reports are analyzed to determine the solvency
  and financial health of pension plans
• Legal Review
• The Trust Deed and Plan Rules are evaluated to
  determine compliance with the Act and
  Regulations.
• The technical provisions of the constitutive
  documents are also assessed

9
Registration and Licensing

• Tax Review
• The constitutive documents are reviewed by the
  tax authorities
• Ensure compliance with the Income Tax Act
• Determine whether the plans qualify for tax
  exemptions

10
Monitoring
11
Monitoring

• Risk based approach
• The FSC seeks to identify and focus resources on
  plans that are at risk of not meeting promised
  benefits and take remedial action where necessary
• Off-site examination (desk-based reviews)
• The pension plans and corporate service providers
  are required to file certain statutory reports to
  the FSC
• The reports are analyzed with a view of assessing
  the risk profile of the entities
• Determines which plans or corporate service
  providers will be targeted for an on-site
  examination

12
Monitoring

• On-site Examinations
• These allow the FSC to obtain pertinent
  information on the licensees and registrants
  which cannot be determined from the desk-based
  reviews
• Winding-up
• Amendments

13
Governance

• The governance of the plan lies with the Trustees
  who are ultimately responsible for its
  management
• The pension legislation provides for the
  inclusion of at least one member nominated
  trustee and a pensioner where there are 30 or
  more deferred pensioners and pensioners
• Sponsor trustees should be no more than 50 plus
  one
• This is intended to allow for members interest
  to be represented on the Board of Trustees

14
Public Education

• An important aspect of the FSCs role is to
  sensitize stakeholders, particularly trustees of
  their role in the management of pension plans
• Workshops were held to
• Educate and inform trustees and their agents of
  the registration requirements of the legislation
  as it relates to the registration process
• Educate trustees on the annual reporting
  requirements of pension plans

15
Enforcement

• Recourse to FSC
• Sanctions
• Fines

16
Areas of Concern

• Non payment of contributions
• Lack of transparency
• Refund of Employer Contributions
• Performance and Diversification of Investments
• Winding-Up
• Distribution of Surplus
• Enforcement
• Conversion of DB to DC Plans

17
Case Study
18
Conversion- Defined Benefit Pension Plan to
Defined Contribution Pension Plan

• A Jamaican Case Study

19
Conversion

• Global trend-conversion from a DB to DC
• Reasons reduction of plan cost and future
  pension obligations.

20
Three approaches

• Approach 1- DB DC for Existing Members, DC for
  New Members
• membership/service prior to conversion defined
  benefit (DB) Plus
• membership/service post conversion defined
  contribution (DC)
• Approach 2 DB for Existing Members, DC for New
  Members
• Approach 3 DC for All Members

21
Regulators Concerns

• How can the regulator protect the members rights
  and pension benefits?
• Are the participants able to determine their
  position before and after the conversion?
• Is the amendment compliant with the Act and
  Regulations?

22
Hypothetical Example

• A company has approximately 1,800 employees
• Both blue and white collars workers
• Decides to convert its defined benefit to defined
  contribution

23
Companys Actions

• Resolution passed
• Notifications to members and the FSC
• Voting results
• Conversion documents, communication with members
• The company facilitated sessions with the members
  

24
FSCs Key Decision Principles

• Principle 1 Ensuring Participants are not
  worse off
• Principle 2 Ensuring Participants were Able to
  Determine their Position
• Principle 3 Compliance with the Act
  Regulations

25
Principle 1 Ensuring Participants are not
worse off

• Compare revised Trust Deed Rules with the
  original documents
• Meticulous attention paid to the provisions
  regarding benefits

26
Findings

• Deferred past service pension was not subject to
  a minimum pension
• The formula for pre 199x joiners did not take
  account of a members voluntary contributions
• There was no indication that the members
  contributions under the DB component would be
  updated with interest.

27
Findings

• The company provided additional benefits for
  pensioners and certain deferred pensioners
• Past service benefits will be secured by way of
  group annuity and group annuity deferred
  contracts from an insurance company.

28
Clarification of Issues Identified

• Whether the group annuity contracts and group
  deferred annuity contracts relate to current
  pensioners and deferred pensioners?
• Methodology that would be used to choose the
  assets from the pool pension funds to purchase
  the annuities?
• Criteria to be used in the selection of the
  insurance company.
• Whether the company would honour past service
  benefits in the event the insurance company
  defaults

29
Company Response

• Compliance with legislation
• Consultations prior to selection of insurance
  company
• Written confirmation

30
Principle 2 Ensuring Participants are Able to
Determine their Position

• Meticulous attention to all forms and contents of
  communication
• A determination as to whether members were clear
  on
• Difference between DB DC
• Language, technical terms and jargons
• Change in responsibilities rights of each
  stakeholder
• Risks
• Illustrations- demonstration of how the benefits
  have been impacted

31
Findings

• Documents were too technical for the general
  membership
• The risks involved were not explained
• Education on asset allocation choices were not
  provided

32
Findings

• Sample illustrations for the various categories
  of members were by and large acceptable.
• Concerns/comments
• The portfolio mix assumption used may be
  interpreted to be the most appropriate one for
  the member, since the illustration was
  personalized
• The rate of exchange assumption was not
  disclosed,
• The annuity rates and the basis for the rates for
  the group annuity contracts were not disclosed.

33
Principle 3 Compliance to Act Regulations

• An evaluation of the amended constitutive
  documents was carried out to ensure compliance
  with the Act and Regulations.

34
Conclusion

• Recommendation Approval subject to the receipt
  of the following
• Actuarial Valuation report as at the date of
  conversion
• The annuity rates and the basis for the rates for
  the group annuity contracts for pensioners and
  deferred pensioners.

35
What lies ahead

• Phase II
• Risk Based Supervision
• Increased Public Education National Pensions
  Policy
• Maturity of the industry
• Retirement Schemes
• Multi-employer Plans
• Small Pension Plans
• New Retirement Products

36
QUESTIONS?