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CIA Annual Meeting

CIA Annual Meeting. LOOKING BACK…focused on the future. Discipline and the Pension Actuary Robert J. McKay June 28, 2005. Agenda. Bottom Line Refresher on Discipline Process The Statistics Case Studies How to Keep Off the CPC’s Agenda. Bottom Line.

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CIA Annual Meeting

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  1. CIA Annual Meeting LOOKING BACK…focused on the future

  2. Discipline and the Pension ActuaryRobert J. McKayJune 28, 2005

  3. Agenda • Bottom Line • Refresher on Discipline Process • The Statistics • Case Studies • How to Keep Off the CPC’s Agenda

  4. Bottom Line • About 2 actuaries per year are sanctioned • Only 25% of cases produce sanctions • Pension area has most discipline issues

  5. Discipline Process—Begins • CPC receives a complaint • Can lay a complaint itself

  6. Initial Screening • After preliminary review, CPC may either: • Dismiss complaintor • Appoint Investigation Team

  7. IT Report • Based on the IT report, CPC may either: • Dismiss complaint (with or without letter of advice) • Charge and issue a private admonishment • Charge and offer plea with recommendation of sanction (fast track) • Charge and refer to public Disciplinary Tribunal

  8. Sanctions Available • (Private admonishment) • Public reprimand • Suspension or expulsion from CIA • Refresher training • Fine and/or costs • Combination of above

  9. Current Complaints • As of April 30, 2005, ten complaints against seven members: • Life: 3 • Pension: 7 • P&C: 0 • Workers’ Compensation: 0 • Actuarial evidence: 0

  10. Past Complaints Since 1992 • 98 cases completed • 50 dismissed • 48 referred to Investigative Teams • 26: no charges filed • 22: charges were filed

  11. Of the 22 Cases With Charges • 3: private admonishment • 7: fast-track • 12: disciplinary tribunal appointed • 1 not guilty • 11 guilty of some or all charges

  12. Frequent Issues in Complaints • Sloppy work • Cosigning/peer review • MEPP • Wind ups • Work outside area of expertise • Expert witness/actuarial evidence • Ethics

  13. How We Learn of Problems • Regulators • Rule 13 • Plan members/sponsors • Legal proceedings

  14. Do All Errors => Discipline? No • We all make mistakes/oversights • Rectification under Rule 13

  15. Do All Errors => Discipline? Discipline • Negligence • Numerous mistakes/pattern of sloppy work • Financial loss (potential or actual) • Magnitude of errors

  16. Do All Errors => Discipline? Discipline • Violation of Standards • Ethical issues • Hide errors

  17. Case 1—Issue • Surplus overstated in wind-up report • Plan ran out of money

  18. Case 1—Why Charged • Data checks not sufficient • In transit benefit payments missed • AVCs missed • Deferred pensioner missed • Review of results was insufficient • Inadequate disclosure of data sources and checks

  19. Case 1—Charges • Rule 1: Skill and care • Rule 3: Follow standard of practice

  20. Case 1—Result • Pleaded guilty and accepted a public reprimand

  21. Case 2—Issue • Incorrect determination of wind-up status

  22. Case 2—Why Charged • Minimum transfer values did not comply with Recommendations • Former methodology used in some cases • Inadequate disclosure of assumptions, methods, checks, etc. • No statement as to data, assumptions, methods, etc.

  23. Case 2—Charges • Rule 1: Responsibility to public • Rule 1: Skill and care • Rule 3: Follow standard of practice • Rule 15: Disclosure • Violated recommendations

  24. Case 2—Result • Pleaded guilty and accepted: • Public reprimand • Fine and costs • Two year peer review

  25. Case 3—Issue • Multiple errors in MEPP valuation report (DB and DC benefits)

  26. Case 3—Why Charged • Insufficient documentation • No evidence of data checks • No working papers on account balance calculations • No working papers on contingency reserve

  27. Case 3—Why Charged • Other actuary could not use report (multiple errors/lack of clarity) • Contribution requirements • Treatment of expenses • Indexed and unindexed pensions aggregated • Fund returns and interest credits differ • Gain and loss obviously wrong

  28. Case 3—Why Charged • Surplus overstated by $1.5 million • Liabilities reduced for asset impairment • Assets not reduced • “Error so basic…”

  29. Case 3—Charges • Rule 1: Responsibility to public • Rule 1: Skill and care • Rule 3: Follow standard of practice • Old Rule 15: Disclosure • Numerous other charges related to work as an insurance Appointed Actuary

  30. Case 3—Result • Guilty of violating Rule 1 in four instances • “Evidence showed multiple breaches of other Rules”

  31. Case 3—Result • Serious lack of competence • Grave failure to apply professional standards • Repeat offender

  32. Case 3—Penalty • 3 year suspension • Comply with CPD requirements for readmission • Significant costs

  33. Case 4 Issue • Failure to disclose commission payments Charges • Multiple Rules cited in charges

  34. Case 4—Result • Guilty of all charges • One year suspension • $10,000 fine • $140,000 costs

  35. How to Keep Off CPC’s Agenda • Get all work peer reviewed • Review Standards of Practice regularly • If something is new to you—ask for help

  36. How to Keep Off CPC’s Agenda • If you are new to a case/firm—spend more time • If you co sign a report—it’s yours • If you discover a problem—discuss with other actuary—Rule 13

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