Adriaan Bloem, IMF
John Ruser, BEA
Co-chairs

 At December 2004 meeting, the Advisory Expert
Group on National Accounts (AEG) asked for a task force (TF) to prepare AEG’s further discussion on recording pension funds in the national accounts
 That TF would prepare a discussion paper for the AEG’s meeting in January 2006

 IMF and BEA put together the TF
 Drafted a Terms of Reference (TOR)
• Circulated TOR for comments among the Inter-secretariat
Working Group on National Accounts (ISWGNA)
• After some discussion the ISWGNA agreed
 Focused TF on defined benefit pension schemes
• Some discussion of defined contribution schemes and the borderline with social security
 Invited participants for the TF, asking them to draft discussion papers on the topics identified in the TOR
 Task Force meeting held in Washington, DC from
September 21 to 23, 2005

 IMF and BEA co-chairs
 Representatives of international organizations
 ECB, Eurostat, IMF, OECD, UN, World Bank
 Country representatives
 Australia, Canada, Denmark, India, Netherlands,
Sweden, USA
 US pension actuaries

 Schemes set up to provide retirement benefits to participants, based on employer-employee relationship
 Funded, unfunded, or over- or under-funded
 May or may not be mandated by government
 Autonomous or non-autonomous
 Autonomous schemes involve institutional units separate from employers
 Non-autonomous schemes are managed by employers, with or without segregated reserves

 Output
 Autonomous pension schemes: measured separately
 Non-autonomous schemes : not recorded separately
• Ancillary to employer’s main output
 Employers contributions (part of compensation):


Funded schemes: actual contributions
Unfunded schemes: imputed
• In principle, SNA recognizes imputation should be based on actuarial considerations
• In practice, SNA suggests using benefits paid in current period

 Employee contributions
 Recognized for all pension schemes
 Property income
 Attributed to beneficiaries
 Only recorded for funded pension schemes
• As investment return on fund assets (insurance technical reserves)
 Investment return includes only property income, not holding gains
• Anomalous treatment of interest-bearing versus non-interest bearing securities

 Output from non-autonomous funds ancillary to main employer activity
 Fails to recognize that pension schemes provide services to beneficiaries, not employers
 Estimating employer contributions based on amounts paid


SNA does not do this for any other liability
Employers’ contributions should reflect liabilities to employees, regardless of funding
• PV of future pension benefits from service in current period

 SNA internally inconsistent
 Compensation of employees in income account includes imputed employer contributions for unfunded schemes
 But, the concomitant assets/liabilities related to future benefits are not recognized in the financial accounts or balance sheets
 In contrast, such assets and liabilities are recognized for funded schemes
 Under- and over-funding is not recognized as an employer obligation or claim

 There is output for both autonomous and nonautonomous funds
 Output of pension funds should be measured at cost
 Including the full management cost of any insurance company managing a fund
 Output is consumed by the beneficiaries (i.e. households)
 More work required to determine if the output of autonomous pension funds should be based on actual or expected transactions and holding gains/losses

 The value of property income should be
The expected property income on the accumulated value of benefits (due to the unwinding of the discount of these benefits)
Plus the service charge for funds management
 For autonomous funds: The fact that some property income may be funded from holding gains is not a reason to exclude this amount

 Actuaries develop estimates from
 Information on individual workers and pension plans
 External information (e.g. discount rate)
 Actuarial standards require that the discount rate be based on high quality bond rates relevant to employer and with relevant time to maturity
 Present value of pension liabilities is sensitive to discount rate

 There are a number of different valuation approaches
 Projected benefit obligation (PBO)
 Part of total pension benefits employee will earn during entire career, due to years of service to date
 Accrued benefit obligation (ABO)
 Calculated for years of service to date based on current wage and salary rates
 PBO > ABO, with large difference in early years decreasing towards retirement date

 The accumulated value of benefits should only be calculated based on service to date (ABO)
 Should not take projected future wages and salaries into account (PBO)
 PBO estimates could be provided in memoranda
 The value of household pension assets is consistent with the actuarial value of the employer’s liability to provide future retirement benefits
 Due to service provided to current date

 Professional practice confirms the consistency of actuarial estimates and accounting conventions
 Accounting conventions are likely to move from including PBO to ABO based estimates in the balance sheet
 PBO based estimates are expected to continue to be available

 An acceptable discount rate would be the interest rate on high quality securities relevant to the sponsor of the pension scheme

 A multi-employer defined benefit pension scheme typically assumes the liabilities of all employers within the scope of the scheme
 In that case, an employer does not incur any further liabilities once it has joined the scheme, apart from regular contributions to the scheme, until he withdraws from the scheme

 Autonomous schemes
 Include in the pension subsector of the financial corporations sector
 Non-autonomous schemes
 Include in the sector of the sponsor
 Unless, quasi-corporations can be established for funds
• In which case they are sectored the same as autonomous funds

 Four papers were presented, with different proposals for the recording of pensions
 Brian Donaghue (consultant, IMF)
 Record both funded and unfunded pension schemes in the core accounts
 Record based on actuarially-determined accrued liabilities
 Reimund Mink (ECB), Dieter Glatzel (Eurostat)
 Leave core accounts unchanged
 Record unfunded pension schemes and social security identically in supplementary accounts

 François Lequiller (OECD)


A compromise between the two previous positions
Incorporate unfunded pension schemes in the core accounts
 Treat stocks and flows of unfunded schemes separately from funded schemes
• leading to alternative balancing items


Keep stocks and flows of social security outside core accounts
Include an estimate of contributory social security liabilities in supplementary accounts
 Record pension liabilities associated with government employees in the core accounts regardless of label

 A clear majority of the task force recommended the following:
 All pension liabilities of employers should be recognized, irrespective of the degree to which the schemes are funded
 Stocks and flows of all pension schemes should be recorded in the core accounts
 Specific guidance needs to be given to so-called
“notional defined contribution” schemes
 Recognizing practical problems and user needs, stocks and flows of funded and unfunded schemes should be separately identified

 Social security is essentially a redistributive process imposed and controlled by government
 benefits provided are not directly linked to the size of contributions
 Some governments operate schemes which combine this basic social security function with what is effectively a multi-employer pension scheme
 The criteria for distinguishing basic social security from employer-related pension schemes need to be reviewed as a matter of urgency