Technical Review Panel for the Pension Insurance Modeling System (PIMS)

265 Pages Posted: 11 Jan 2014

See all articles by Olivia S. Mitchell

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Christopher Geczy

University of Pennsylvania - The Wharton School, Finance Department

Robert Novy-Marx

Simon Business School, University of Rochester; National Bureau of Economic Research (NBER)

Raimond Maurer

Goethe University Frankfurt - Finance Department

Donald E. Fuerst

Mercer Human Resource Consulting

Christopher Bone

Independent

Donald Segal

Independent

Martin G. Clarke

Independent

Frank J. Fabozzi

EDHEC Business School

Deborah Lucas

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David F. Babbel

University of Pennsylvania - The Wharton School - Finance and Insurance Departments; CRA International

Date Written: September 30, 2013

Abstract

In April of 2013, the Pension Research Council of the Wharton School at the University of Pennsylvania convened a Technical Review Panel, comprising ten experts whose task it was to review the Pension Benefit Guaranty Corporation’s (PBGC) Pension Insurance Modeling System (PIMS), including inputs, outputs, and model assumptions. The review was intended to provide a formal evaluation of the technical adequacy of the model by outside experts. Each expert participating on the Technical Panel was asked to review background material (see References) and focus on a particular aspect of the PIMS model. The list of panelists and topics was developed by the Council in discussion with the Social Security Administration (SSA). This report and the appended papers herein from our Technical Panel comprise the Final Report under this project.

The Panel’s key findings may be summarized as follows: (1) The PIMS models are an important and valuable tool in modeling the Agency’s liability risk. To the best of our knowledge, there is no other model that can do a comparable job; (2) Nevertheless, some improvements could be integrated in the Agency’s approach to modeling. Those deserving highest priority attention in the experts’ view are the following: (a) Incorporating systematic mortality risk (i.e., treat mortality and longevity as stochastic variables); (b) Including new asset classes increasingly found in defined benefit plan portfolios (e.g., commercial real estate, private equity funds, infrastructure, hedge funds, and others); (c) Developing a more complex model for the term structure of interest rates; and (d) Incorporating an option value approach to pricing the insurance provided. (3) 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 (CVaR), 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: pensions, insurance

Suggested Citation

Mitchell, Olivia S. and Geczy, Christopher Charles and Novy-Marx, Robert and Maurer, Raimond and Fuerst, Donald E. and Bone, Christopher and Segal, Donald and Clarke, Martin G. and Fabozzi, Frank J. and Lucas, Deborah and Babbel, David F., Technical Review Panel for the Pension Insurance Modeling System (PIMS) (September 30, 2013). Michigan Retirement Research Center Research Paper No. 2013-290, Simon School Working Paper No. FR 13-32, Available at SSRN: https://ssrn.com/abstract=2376487 or http://dx.doi.org/10.2139/ssrn.2376487

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christopher Charles Geczy

University of Pennsylvania - The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(215) 898-1698 (Phone)
(215) 898-6200 (Fax)

Robert Novy-Marx

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Raimond Maurer

Goethe University Frankfurt - Finance Department ( email )

Grüneburgplatz 1
House of Finance
Frankfurt, 60323
Germany

Donald E. Fuerst

Mercer Human Resource Consulting ( email )

Toronto, Ontario M5H 1J9
Canada
+1 303 376 5 (Phone)

Christopher Bone

Independent ( email )

Donald Segal

Independent

Martin G. Clarke

Independent ( email )

Frank J. Fabozzi

EDHEC Business School ( email )

France
215 598-8924 (Phone)

Deborah Lucas

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

David F. Babbel

University of Pennsylvania - The Wharton School - Finance and Insurance Departments ( email )

215 Wakefield Road
Bryn Mawr, PA 19010
United States
610-527-1839 (Phone)

CRA International ( email )

John Hancock Tower
200 Clarendon Street, T-33
Boston, MA 02116-5092
United States
610-527-1839 (Phone)

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