CFA CFA Level 3 IPS (DB Plan) – Active to retired participants ratio

IPS (DB Plan) – Active to retired participants ratio

  • This topic has 16 replies, 3 voices, and was last updated Oct-17 by Alta12.
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    • Alta12
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      @ravivooda @vincentt

      If the ratio of active to retired participants in a DB plan is 1:1 (I know this is not a desired ratio as it will increase the liquidity needs and shorten the investment time frame) – but how do you described the ratio. Is 1:1 high ratio or low ratio? – how to describe it in an IPS?

    • vincentt
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      In this case I don’t think I can describe the ratio either but maybe look for whether the ratio is increasing or decreasing. If the ratio is increasing (e.g. hiring more younger staff, etc) then risk tolerance is increasing.

    • RaviVooda
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      @alta12, very unlikely that they will give this ratio :). But would definitely see it as high. Having equal number of retirees as active ones might mean company established quite long ago and might have slowed down and not able to keep pace with trend. so sponsor also might not be in a good shape. (on the other side it might have adopted to latest technologies and reduced its staff drastically too)

    • Alta12
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      @ravivooda That’s why I’m confused!!! Check out Schweser Book 2 (Exam 2 – Q2). Schweser is stating 1:1 active to retired is a low ratio!!! What the! Shall we ignore???

    • RaviVooda
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      @alta12, in the question it compares against industry standard. The companies work force avergae age is more than the industry, so we need higher liquidity(relatively)

    • RaviVooda
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      @alta12, I see it in the answer as high only. 2C right? Hope I am looking at the right one

    • Alta12
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      Q2B Risk tolerance (last bullet point). I didn’t see the answer in 2C. So maybe 2B is a typo?

    • RaviVooda
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      @alta12, 2B is about risk tolerance and return, not about liquidity

    • Alta12
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      @ravivooda But the way to describe the ratio should be the same?

    • RaviVooda
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      @alta12, I think what text says is right. 1:1 ratio is high for us implies active lives are low( retirees are very high). So active to retired ratio is low.

    • Alta12
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      @ravivooda thanks! Hmmm…I think I will be specific in the exam rather than just stating low or high.

    • RaviVooda
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      @alta12, I am thinking you are getting very tensed 😀

    • Alta12
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      I think I am going mental!!!

    • RaviVooda
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      @alta12, all I hope is our paper is not a bomb like the 2013 one. I have seen people who appeared for level 3 leaving exam in the first half itself

    • Alta12
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      @ravivooda you mean you saw people leave half way through L3 AM session last year? I’m really worried now but I can’t really get anything more into my head. I think I need to calm down and relax. I know out of all the possible institutional IPSs, two types will really get me! I’m praying it won’t appear!

    • RaviVooda
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      @alta12, they left in the morning only. I would never do that. Just relax these 2 days. Revise notes/ formulae. Whatever comes let us give our best shot. in fact I stopped studying from today morning itself. Don’t want to get strained anymore.

    • Alta12
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      @ravivooda good call! I had formulas planned for tomorrow.

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