The need to understand the employer covenant in the legal sense and additionally the employer commitment is critical to any defined benefit scheme for all the relevant stakeholders.
There needs to be an alignment between employer covenant/commitment and investment strategy. Risks must be adequately ‘underwritten’ by the employer.
Assumptions must be aligned with market conditions and investment strategy.
There needs to be realism in member communications with regard to the likelihood of any discretionary benefits being paid.
Additionally, commutation factors must be consistent with how they are documented under the trust deed and rules, particularly if the rules indicate actuarial equivalence.