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Overviewing the findings: the Technical Panel Review of the Pension Insurance Modeling System*‡

Published online by Cambridge University Press:  30 December 2014

OLIVIA S. MITCHELL
OLIVIA S. MITCHELL*
Affiliation:
Wharton School, University of Pennsylvania, 3620 Locust Walk, Suite 3000 Philadelphia, PA 19104-6302 (e-mail: mitchelo@wharton.upenn.edu)
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Abstract

The Pension Benefit Guaranty Corporation's (PBGC) Pension Insurance Modeling System (PIMS) is used to evaluate the financial security and resilience of the national program backstopping private defined benefit plans. The Pension Research Council of the Wharton School at the University of Pennsylvania recently convened a Technical Review Panel of experts to review key inputs, outputs, and model assumptions. Our review was intended to provide a formal evaluation of the technical adequacy of the model by outside experts. The papers herein summarize views of each expert on this project. Key findings are as follows:

  • • The PIMS models are an important and valuable tool in modeling the Pension Benefit Guaranty Corporation's liability risk. To the best of our knowledge, there is no other model that can do a comparable job.

  • • Nevertheless, some improvements could be integrated in the Agency's approach to modeling. Those deserving highest priority attention, in the experts’ view, include incorporating systematic mortality risk (i.e., treat mortality and longevity as stochastic variables); including new asset classes increasingly found in defined benefit plan portfolios (e.g., commercial real estate, private equity funds, infrastructure, hedge funds, and others); developing a more complex model for the term structure of interest rates; and incorporating an option value approach to pricing the insurance provided.

  • • The Agency could also do more to communicate the range of uncertainty and potential for problems associated with the PBGC's financial status. This could include additional information including the conditional value-at-risk, and perhaps an ‘intermediate,’ ‘optimistic’, and ‘pessimistic’ set of projected outcomes, as well as the expected ‘date of exhaustion’ for assets backing pension benefits insured by the PBGC.

Keywords

G22J26J32G28Pension Benefit Guaranty CorporationPension Insurance Modeling System (PIMS)pensionsinsurancedefined benefitpublic policyrisk
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 14 , Issue 2: Special Issue on Assessing the U.S. Pension Insurance Modeling System (PIMS) , April 2015 , pp. 115 - 124
Copyright
Copyright © Cambridge University Press 2014 

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References

References

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Further Reading

Buck Consultants (2012). ME-PIMS Peer Review Report. Letter from Buck Consultants to Larry Shirley of the Pension Benefit Guaranty Corporation. Berwyn, PA: Buck Consultants, September 12.Google Scholar
Lynchval Systems (2012). Multiemployer PIMS − Known Limitations in ME-PIMS, Version 2.0. (Disclosures for Validation). Chantilly, VA: Lynchval Systems Worldwide, Inc., February 10.Google Scholar
Pension Benefit Guaranty Corporation (PBGC). How PBGC Operates. Pension Benefit Guaranty Corporation [website]. Available at http://www.pbgc.gov/about/factsheets/page/pbgc-facts.htmlGoogle Scholar
Pension Benefit Guaranty Corporation (PBGC) (2009). SE PIMS PPG App B. Tech Architecture vFY09. Washington, DC: PBGC.Google Scholar
Pension Benefit Guaranty Corporation (PBGC) (2010 a). A Brief Description of PIMS’ Source Code. SE PIMS Programmers Guide. Washington, DC: PBGC.Google Scholar
Pension Benefit Guaranty Corporation (PBGC) (2010 b) SE PIMS User Guide. Washington, DC: PBGC.Google Scholar
Pension Benefit Guaranty Corporation (PBGC) (2010 c). SE PIMS PPG App A. Pension Insurance Modeling System (PIMS) Input Data Structure vFY09.1. Washington, DC: PBGC.Google Scholar
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Pension Benefit Guaranty Corporation (PBGC) (2011 e). Overview of the Pension Insurance Modeling System (PIMS). Washington, DC: PBGC, April 27.Google Scholar
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