Masonry Magazine September 1962 Page. 10
By Kenneth K. Keene
Associate Actuary
Aetna Life Insurance Co.
THE AUTHOR Kennet Keene is an Associate Actuary at Aetna Life Insurance Company, a national insurance organization with home offices in Hartford, Connecticut. He completed undergraduate work at the University of Florida and has a master's degree from the University of Michigan. He is a Fellow in the Society of Actuaries and currently serves on its Education and Examination Committee.
Mr. Keene has been specializing in the group pension field. He is devoting an important part of his time to the design and operation of multiple-employer pension plans. His company administers group pension plans covering more than 600,000 employees and involving pension investments of almost two billion dollars.
Setting Up a Pension Plan: What You Should Know
This is the second, and final, part of the pension plan series begun in the September issue of MASONRY. Part I outlined some of the reasons behind such a plan, the usual ten-step procedure involved in setting up a pension plan as well as what employer must do to start its implementation. August's article also included a detailed analysis of the first two steps of this somewhat complicated procedure. This concluding section continues this analysis through the remaining eight steps, with the necessary parenthetical remarks to clarify them. Send any questions or comments you may have on this series to MASONRY, and look for the answers to your inquiries in the October MASONRY.
PART II
Step 3-Development of Plan
Of greatest interest to the employees will be the answer to the question, what will 10 or 15¢ per hour produce in the form of benefits? This will depend on the type of benefit, the emphasis to be placed on past service versus future service, the relative age group, expected investment earnings, labor turnover, and many other factors. The question falls into the complexities of that mysterious field known as actuarial science. At this point the trustees are advised to consult their actuary. The final answer is in many respects like gazing into a crystal ball and coming up with the solution. Nevertheless, we in the actuarial field believe that our crystal ball is a clear one within carefully hedged limits. At least we can provide a starting point for initiation of specific plan benefits, and it will be up to later experience to determine proper departures from this starting point.
There are different types of actuaries practicing in the pension field. Those possessing obvious competence are generally Fellows in the Society of Actuaries (a highly regarded professional group selected through a rigid series of written examinations), most of whom are employed by insurance companies. Actuarial services are usually available through insurance companies which underwrite
group pension plans-there is no charge for the technical work needed in the initial development of the plan. Because of this we usually recommend that the trustees utilize an insurance company to develop the initial plan. This does not mean that the insured method must be selected as the funding medium for handling the investments or other aspects of the plan. Although the insurance company which provides actuarial service would like to handle the case, it is simply taking a business risk when presenting its free actuarial services.
Another method of obtaining actuarial services is to go through a recognized actuarial consulting firm for whom a specific fee is charged. These organizations maintain an aura of independence. It has been our experience however that advice in this specialized field is rarely unbiased whether it comes from insurance companies, bank trust departments, or independent consultants. On this point we once saw a pamphlet prepared by a prominent bank which flatly states "It might as well be stated right here that there is no completely unbiased advice on pensions." The writer of this article hastens to add that he is considerably biased on pensions!
In developing benefits the actuary must make long-term projections. Sometimes there is a feeling that the contribution rate can be mostly used for current benefits.
CHART 2
Years into the Future.
MASONRY September