CIA Annual Meeting

CIA Annual MeetingCIA Annual Meeting

LOOKING BACK…focused on the futureLOOKING BACK…focused on the future

CIA Annual Meeting Session CIA Annual Meeting Session 2302-2302-Professional Conduct Issues in PensionsProfessional Conduct Issues in Pensions

LOOKING BACK…focused on the futureLOOKING BACK…focused on the future 2

Discipline and the Pension Actuary

Robert J. McKayJune 28, 2005



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



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



Discipline Process—Begins• CPC receives a complaint

• Can lay a complaint itself



Initial Screening• After preliminary review, CPC may

either:• Dismiss complaint

or• Appoint Investigation Team



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



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



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



Past Complaints Since 1992• 98 cases completed

• 50 dismissed• 48 referred to Investigative Teams

• 26: no charges filed• 22: charges were filed



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



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



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



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



Do All Errors => Discipline?Discipline• Negligence• Numerous mistakes/pattern of sloppy

work• Financial loss (potential or actual)• Magnitude of errors



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



Case 1—Issue• Surplus overstated in wind-up report

• Plan ran out of money



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



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



Case 1—Result• Pleaded guilty and accepted a public

reprimand



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



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.



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



Case 2—Result• Pleaded guilty and accepted:

• Public reprimand• Fine and costs• Two year peer review



Case 3—Issue• Multiple errors in MEPP valuation report

(DB and DC benefits)



Case 3—Why Charged• Insufficient documentation

• No evidence of data checks• No working papers on account balance

calculations• No working papers on contingency reserve



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



Case 3—Why Charged• Surplus overstated by $1.5 million

• Liabilities reduced for asset impairment• Assets not reduced• “Error so basic…”



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



Case 3—Result• Guilty of violating Rule 1 in four

instances• “Evidence showed multiple breaches of

other Rules”



Case 3—Result• Serious lack of competence• Grave failure to apply professional

standards• Repeat offender



Case 3—Penalty• 3 year suspension• Comply with CPD requirements for

readmission • Significant costs



Case 4Issue• Failure to disclose commission payments

Charges• Multiple Rules cited in charges



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



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



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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