Subscribe to DSC Newsletter

The Big Data and Business Intelligence twins! To the rescue of Defined Benefits Pension Plans (DBPP’s)

Good day and my warmest hellos from Montreal, Canada to all members of the Data Science Central virtual community.

I have recently joined this very interesting, bountiful and multi-sub-disciplinary web site in the data science field and admittedly I’m still exploring all of its numerous knowledge facets.

In order to introduce myself to all of you I thought it would be à propos to use the project I’m currently working on as a window to my expertise, which compared to all of you, is minimal at best.

My goal is to begin a mutually beneficial dialogue that will allow knowledge and expertise sharing with my Canadian colleagues/members as well as with all of you south of the border and from other continents, with regards to the BI solution I’m developing called: Ge-ne-ret TM.

The contextual similarities

Indeed the crazy endeavour I’m working on (as I affectionately call it) will also serve to address and resolve the identical and quite serious phenomena that prevail to an even wider scale and higher degree in the US and Europe in the defined pension benefits pension plans arena.

May I remind all of us of the recent casualty In the US, i.e. the city of Detroit who declared bankruptcy in large part due to the weight of its defined benefits pension plan? In the Crain’s Detroit Business web posting, dated March 1st, 2015 an article by Ms. Mary Kramer cites the following:

“Last week, the judge presiding over Detroit's historic bankruptcy repeated his warning: Other cities need to heed the Detroit lesson and transition to defined-contribution pension plans. Pension obligations nearly buried Detroit.

"It flies largely under the radar," now-retired U.S. Bankruptcy Judge Steven Rhodes said of municipal pension liabilities at our Newsmaker of the Year luncheon, where Crain's honored Rhodes and former Emergency Manager Kevyn Orr.” See full article.

It is worth noting at this juncture, that both in Canada and in Europe, the current applicable constitutional and governing laws do not allow for S&L governments - using US terminology here - to be placed under bankruptcy protection by the provinces, counties or regions as the case may be. The tax payers simply continue footing the bill!

Some relevant data

The current financial situation of the large majority of Canadian and European public sectors’ DBPP’s is one that should be keeping our elected officials awake at night as well.

For a more concentrated US perspective, here’s a review conducted by the Fed in the fall of 2014.

For a worldwide view of governments funded public defined benefits pension plans the following has very interesting data

The solution’s rationale

In order to mitigate the risk of a breach of intellectual property I unfortunately will remain a tad cryptic on the details of my solution.

The video of a conference given in September 2014 in English will also support the following with more verbiage if need be.

I will discuss and outline my R&D’s conclusions and will provide essentially the infrastructure of the data warehouse that I envision. To reach this key foundational milestone will alleviate – I estimate – 30% to 35% of the pain points encountered with the present set-ups, irrespective of the plan promoters sectors, being private, or public and parapublic; the latter applying mostly to Universities here in Canada.

My professional background rests on 3 main pillars; the financial and administrative management of defined benefits pension plans, project management (Waterfall methodology and Agile concepts and principles) and the IS/IT field.

This combo of skills allowed me to look at the very precarious financial health of these plans and with a retrospective historical view to build some trending analysis.  The knowledge acquired over the years (mane of grey hair to prove it) along with an initial validation of my vision by a UCLA, Anderson School, Finance professor I met a year ago, justified my almost relentless quest to get to the bottom of this issue for the sake of future generations across the globe.  

Putting the pieces of this puzzle was perhaps more fluid given my professional background; as far the project management community knows I’m probably the only resource in Quebec with this DNA for the time being? Can’t confirm with a 100 % certainty for the rest of Canada and in the US; will welcome input on this existential questioning of mine from all readers!

The root causes

Let’s begin by tabling the key reasons, which in my opinion, lead us to where we are today without being too technical:

  1. Advanced normal retirement age
  2. Extended  life expectancy
  3. Lower interests rates
  4. All the various markets’ increased volatility since the 2007-2008 financial meltdown (bonds, money, monetary, equities – public and private – etc...)
  5. Increased connectedness in worldwide economies  
  6. Actuarial sciences that have not evolved quickly enough with the actual demographic  (mortality and morbidity) and key economic indicators’ realities
  7. Fund managers who in my opinion were given too much latitude by the plan promoters

I invite you to read the following book available free. The author enlightens us all in behavioural economics and how money is, at times, an extremely dangerous motivational factor without the appropriate check and balances.

After reading this amazing book, it was therefore mandatory that the architecture conceived provide the correct operational parameters and accountability matrices to avoid excessive behaviours from all stakeholders!

The technology is indeed disruptive for both the fund management and actuarial sciences’ established professional communities.

Wearing an IS/IT focused “hat” I have attempted to decipher the pain points in the current e-tools infrastructure, at the plan promoter/employer level, that essentially gave credence to the above 7 factors to take on a life of their own in the day-to-day administration of these plans resulting in the current precarious scenario.

The pain points

  • Based on the various legislative requirements, full or partial actuarial evaluations are required at various moments during the existence of the pension plan; once completed they are remitted over to the plan promoter and the regulatory authorities.In most cases, from the time these evaluations are requested with the appropriate demographic snap shot ex. December 31st, 2014 to the moment of delivery to the plan promoter, already 6 to 8 months may have elapsed. For a plan promoter with frequent and impactful human resources movements, the snap shot used have totally changed during that period, so the numbers provided by the actuary may have little relevance in the decision making mapping process at that point in time. Financial data on the assets vs. liability spread and accuracy thereof are severely jeopardized in this instance. In recent years, the discount rate assumptions utilised by the actuaries may need to be re-examined during a 6 to 8 month window based on Central Banks announcements made throughout said period.

  • Fund management directives are normally given once a year when outsourced to a firm specializing in pension plan assets investment strategy and transactional expertise. Covenants are signed in which asset allocations, money, bonds, equity and alternative markets directives are spelled out, fees and other out-sourcing rules of engagement are specified. In light of the market volatility witnessed in recent years, a covenant with a 12 month horizon will often prove to be too long for the plan promoter to allow some suppleness in the investment strategy as other key data influencers’ variations impact DBPP’s.

 

  • The majority of plan promoters also out-source the administrative functions of plan i.e. retirement payments, transfers of assets to other financial institutions, divorce settlements, death benefits payments (when part of the plan design) etc. The lag to process such requests combined with the time needed to aggregate the data signifies recurring latency from another external source called a TPA (third party administrator) of most likely 3 to 6 month duration over to the plan promoter.

 

  • Last but not least there are no data standards amongst all parties involved in the on-going management of these plans. Hence when the plan promoter wishes to up-date his view of the plan he must take all the relevant data from within and from external sources and spend significant IT time to massage and re-format the data for a quasi-interoperability of the amalgamated view across a number of diverging platforms and applications. 

  • A scenario where multi-party vendors work in silos in any large and complex on-going endeavour leaves room for higher margin of errors, relaxed ethics and governance as best practices are very difficult to implement and highly cumbersome to oversee.

 

Here’s an excerpt from an e-mail received the Bank of England whom I had contacted to get data on the statuses of the UK’s pension plans in January for an op-ed written for a European French speaking targeted audience.

« The problem is, the measures used in each case are different (i.e. the data is prepared using different methods and assumptions) and so you cannot directly compare information in “The Purple Book” … with information in annual accounts. Users of these sources of information should therefore note this and should not mix-and-match data before checking if it is truly comparing like with like».

The defense rests your Honor!

The quick and non-technical conclusions

In summary currently the only real-time data supplied to the plan promoter are the investment portfolio’s assets each morning after closing of the various markets across the globe. So the spread, i.e. assets vs. liabilities is presently not available on an agreed upon regular basis (bi-weekly is ideal in my opinion) under one single easy to use warehouse.

As more industry experts’ analysis, reflections and discourses are aiming towards target benefits, hybrids, or shared risks pension plans in conjunction with Liability Driven Investing the tools to manage these plans accurately and punctually are mandatory.

A complete “under one roof” warehouse regrouping all the basic required data, up-dated regularly, resting on overall accepted and adhered to industry data standards with predictive modelling iterations and dashboard functionalities is definitely the way of the future.  Such architecture will also mitigate the risks of corruptions that sadly were prevalent in a number of Quebec cities until recently. Project management research conducted by the PMI has repeatedly proven that breaking down silos reduces operational costs, corruption inclinations while increasing best practices adoptions and success rates notwithstanding the field.

Our respective governmental machines are too slow and elephant like to address these issues in a quick and agile manner; furthermore we all know that implementing BI solutions imply a much greater accountability and the introduction of best practices by the users. Are our governments ready for this challenge for the sake of our respective economies and worldwide financial stability for the betterment of our future generations? As in climate related issues, financial and economic sustainability for those who will follow us is a must.

In a recent posting in the Inc.com web site this excerpt speaks volume.

Public-Sector Technology

Government agencies using decades-old technology have created an opportunity for hardware and software startups. If you can increase efficiencies in the $450 billion government IT market while navigating this compliance-driven sector, your business is sure to prosper. Keep in mind, however, that winning government contracts can be a lengthy process.

Call to action

Having exposed a bit of knowledge and vision, and being a fervent proponent of knowledge sharing and 360° feedback I invite you to get back to me with your comments, criticisms, suggestions, questions so we can hopefully build a community of evangelists to get our countries out of this retirement planning stalemate for the betterment of our current and future generations. Our expertise to the service of our fellow citizens. 

With my sincere appreciation and warmest regards to all!

Sylvie Leduc

[email protected]

Project Manager | Business Intelligence solution

Specialization in retirement savings plan

View my profile  

"Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent."

~Calvin Coolidge~

Views: 1101

Tags: BI, Benefits, Big, Data, Defined, Pension, Plans

Comment

You need to be a member of Data Science Central to add comments!

Join Data Science Central

Comment by Sylvie Leduc on May 4, 2015 at 9:47am

Thanks for the stat's Steven - curious to see how the other members appraise the situation from their vantage point. Would be delighted to read some more on this specific topic as it relates to enterprise BI.

Comment by Steven Neumersky on May 4, 2015 at 9:39am
That is staggering. Cover-up business cultures, in my mind, have to be in the top 5 of "least discussed, but most impactful" killers of an enterprise level BI program.
Comment by Sylvie Leduc on May 4, 2015 at 9:23am

Thanks so much for the feedback Steven,

I fully agree and the same applies here in Quebec and the rest of Canada. However this so-called scenario is under strict review here as a result of cases of blatant financial corruption between the governments and those incumbent vendors where the mandatory objectivity measured by various KPI had been thrown out the door essentially.

Our PMI - Montreal Chapter will now sit as a member of a consulting committee created by the Quebec government (Treasury Board) to review all these stale practices with the hope of bringing a new era of integrity and cost reductions in the entire process. Much needed given the current precarious state of our public finances.

At the Federal level we have an Auditor General that can intervene at Ministerial levels to ensure the process is indeed followed and the most appropriate for all stakeholders - including Canadian Tax Payers. I will be reaching to him with regards to the Federal Public Sector Ees pension plan (includes our Armed Forces and RCMP) which has a deficit in the hundreds of billions of dollars.....

Love the comparative sharing of details as it helps me with my work! 

Comment by Steven Neumersky on May 4, 2015 at 8:54am
From what I understand, the bidding process for government contracts (at least in the US) highly favor the incumbent vendor. This would seem to be yet another potential roadblock towards improving quality in this area.

Videos

  • Add Videos
  • View All

© 2019   Data Science Central ®   Powered by

Badges  |  Report an Issue  |  Privacy Policy  |  Terms of Service