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MAC: A Proposal for Consistent Actuarial Interest Rates in Pension Funds

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  • Sandro de Azambuja
  • Carlos Heitor Campani

Abstract

Objective: this article proposes the meta atuarial consistente (MAC) (consistent actuarial rate), which is a method that adjusts incompatible actuarial rates in pension funds, after investigating and proving that the rate dissociates from the general rule in current regulations (which binds this rate to the expected return of the investments of pension funds). Methodology: a sample with data from 22 defined-benefit plans was collected, and MAC was applied to produce consistent actuarial rates, after panel data methods have identified the elements that influence the definition of the actuarial rate by the pension fund board of trustees. Results: the use of MAC, adjusting actuarial rates of 2018 based on systematic biases in previous rates, enabled a positive effect that unfolds in more reliable estimates for the plans’ mathematical provision, while identifying elements that influence the determination of the annual rate, causing its non-compliance to the general rule. Conclusion: the adoption of MAC by the Brazilian supervisory authority Previc would improve the rules and provide subsidies to better adjust the contribution levels practiced in the plans, making their solvency levels more reliable, which would benefit the development of the insurance and pension market.

Suggested Citation

  • Sandro de Azambuja & Carlos Heitor Campani, 2022. "MAC: A Proposal for Consistent Actuarial Interest Rates in Pension Funds," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 26(3), pages 200390-2003.
    • Handle: RePEc:abg:anprac:v:26:y:2022:i:3:1507
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    References listed on IDEAS

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    1. Aleksandar Andonov & Rob M.M.J. Bauer & K.J. Martijn Cremers, 2017. "Pension Fund Asset Allocation and Liability Discount Rates," The Review of Financial Studies, Society for Financial Studies, vol. 30(8), pages 2555-2595.
    2. Chapman, R.J. & Gordon, T.J. & Speed, C.A., 2001. "Pensions, Funding and Risk," British Actuarial Journal, Cambridge University Press, vol. 7(4), pages 605-662, October.
    3. Croissant, Yves & Millo, Giovanni, 2008. "Panel Data Econometrics in R: The plm Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 27(i02).
    4. Alda, Mercedes, 2018. "A strategic fund family business decision: The pension fund liquidation," Journal of Business Research, Elsevier, vol. 91(C), pages 248-265.
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