1. Group One

2.  The Defined Benefit (DB) Plan is a pension plan
whose retirement promise is framed according
to benefits to be paid to participants. Its
features are:
 They are promises made by a plan sponsor that
generate a future financial obligation.
 The nature and behaviour of the liability is
uncertain.

3.  Funded status: The difference between the present
values of the pension plan’s assets and liabilities.
 Plan Surplus : The value of plans assets at market
value minus the present value of plan liabilities
 Accumulated Benefit Obligation (ABO):to the
total present value of pension liabilities to date,
assuming no further accumulation of benefits
 Projected benefit obligation (PBO): The pension
benefits due to participants if the plan is
terminated plus projections of future employee
compensation increases. (ABO + future employee
compensation increases)

4.  Total future liability: A measure of pension
liability that takes into account compensation
changes, changes in the workforce and benefit
changes associated with inflation.
 Retired lives: Otherwise known as retired
lives is the number of plan participants
currently receiving benefits from the plan.
 Active lives: The number of employed
participants currently who are currently not
receiving pension benefits.

5.  Plan Status
 Sponsor financial status and profitability
 Sponsor and Pension fund common risk
exposure
 Plan features
 Workforce characteristics

6.  A DB pension plan’s broad return objective is
to achieve returns that adequately fund its
pension liabilities on an inflation-adjusted basis
 The pension fund’s stated return desire may be
higher than its return requirements, in some
cases reflecting concerns about future pension
contributions or pension income:

7.  Tax concerns
 Legal and regulatory concerns
 Unique Circumstances
 Time Horizon
 Going concern or termination
 Active lives proportion and workforce age
 Liquidity Requirement
 Number of retirees
 Size of contribution
 Plan features

8.  The plans can be large with the potential to
affect the sponsoring company's financial
health. The company needs to consider two
factors.
 Managing pension investments in relation to
operating investment
 Coordinating pension investments with pension
liabilities.

9. Advisor
(Alexander
Forbes)
Custodian
Fund
Manager

10.  Key Features of the Scheme Benefit Design
 The pension payments increase at 3% per annum
and there is a provision for additional
discretionary pension increases with the approval
of the scheme sponsoring employer.
 Deferred pensioners are entitled to a deferred
pension payable from their normal retirement age
or after the age of 50. They are revalued at 4% per
annum and increases to deferred pensions once in
payment at 3% per annum.
 The sponsor continues to underwrite the scheme
and is responsible for any funding strains that may
emerge in the future.

11. Primary Objective
• “To disburse pension
payments to pensioners
and deferred pensioners
to dependants on the
death of a pensioner,
with the pensions
payments increasing at
3% per annum and with
a provision for
additional discretionary
pension increases with
the approval of the
Scheme sponsoring
employer"
Funding Ojective
• “To ensure that the
Scheme remains in a
fully funded position
and that the probability
of a call upon the
Scheme Sponsor to
provide additional
funding can be
minimized”

12. InvestmentObjective
•i) To achieve a net return on the Scheme
assets (net of investment expenses) over
the long term at least equal to the
valuation rate of interest/discount rate
of 10% per annum assumed for the
purposes of the actuarial valuation of
the Scheme;
•ii) To seek to improve this absolute
return objective by seeking to structure
immunized portfolios through
matching bond portfolios;
•iii) To do this in a way which minimizes
the possibility of a call on the Scheme
Sponsor for additional funding.
ReturnObjective
•i) To achieve a total rate of return of at
least 10% per annum, net of investment
costs over three year rolling periods;
and
•ii) To outperform the agreed investment
return benchmarks over three year
rolling periods.

13. The Board views risk primarily as the likelihood that the chosen
strategy will result in the objectives not being met. However they
exhibited below average willingness to take risk because they mainly
preferred fixed income investments and developed a defensive and
conservative strategy to manage their portfolio. The scheme
registered a total asset value of Ksh 10553.4 million giving the scheme
an average ability to take risk given the number of pensioners and the
type of pensions they are obliged to pay.
Generally, we assume they have average risk tolerance.

14. Constraint Features
Legal and Regulatory RBA
Time Horizon Not a going concern, Closed DB
Multistage
Liquidity Requirements No current liquidity requirements
Changes in the pension amounts in
future
Tax concerns Tax exempt
Unique circumstances 11,313 Dependants
Investment constraints

15. Asset class Tactical Allocation
Range (%)
RBA
Max%
Cash & demand deposits 5 5
Fixed and time deposits 5-10 30
Term notes(commercial paper, corporate
bonds , loan stocks)
0-10 30
Government of Kenya securities 40-70 70
Quoted domestic Equities 0-15 70
Offshore bond investments 0-5 15
Immovable property 0-25 30

16.  For easier and proper monitoring and
evaluation process, the following sections were
narrowed into:
 Investment manager performance review
 Strategy (annual) review
 In-depth strategy (triennial) review

17.  The Kenyan government wants to shift from
the DB to the DC plan.
 Civil servants to start paying for retirement
dues……………
Civil servants will contribute 2% of their salary in
their first year to the retirement scheme and then
5% and 7.5% in the second and third years
onwards respectively. In addition the
government will have a life insurance policy with
at least five times the member’s annual
pensionable emoluments.

18. Mr oduor
Underwriter
Geminia
Mr Njeru
Actuary
Alexander
Mr Kala
Fund Manager
ICEA
Mr James
Fund Manager
UAP
Mrs Nguyo
Consultant
Alexander Forbes