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Measuring and explaining pension system risk*

Published online by Cambridge University Press:  14 January 2015

FRANK J. FABOZZI
FRANK J. FABOZZI*
Affiliation:
EDHEC Business School, EDHEC Risk Institute, 1 George St., Singapore 049145, Singapore (e-mail: frank.fabozzi@edhec.edu)
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Abstract

We discuss pension system risk in the USA, focusing on the investment policy and the methodology for the valuation of the liabilities of the Pension Benefit Guaranty Corporation (PBGC). We offer suggestions as to how the PBGC should consider modifying the Pension Insurance Modeling System. The issues of investment policy and liability valuation are not two distinct topics. As emphasized here, the proper valuation of liabilities provides a benchmark for the PBGC to use as a starting point for the establishment of its investment policy and then for assessing investment performance.

Keywords

G11G28J32defined benefit planPension Benefit Guaranty CorporationPension Insurance Modeling System
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. 161 - 171
Copyright
Copyright © Cambridge University Press 2015 

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Footnotes

*

The research reported herein was pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium (RRC); the author also acknowledges support from The Pension Research Council at The Wharton School. All findings and conclusions expressed are solely those of the author and do not represent the views of the SSA or any agency of the federal government, the MRRC, the PRC, or The Wharton School at the University of Pennsylvania.

References

Congressional Budget Office (CBO) (2008) Letter to the Honorable George Miller: A Review of the Pension Benefit Guaranty Corporation's New Investment Strategy. April 24. Washington, DC: CBO. Available online at http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/91xx/doc9156/04-24-miller-pbgc_letter.pdfGoogle Scholar
Pension Benefit Guaranty Corporation (PBGC) (2012 a). Annual Report 2012. Washington, DC: PBGC. Available online at http://pbgc.gov/documents/2012-annual-report.pdfGoogle Scholar
Pension Benefit Guaranty Corporation (PBGC) (2012 b). FY 2012 Exposure Report. Washington, DC: PBGC. Available online at http://www.pbgc.gov/documents/2012-exposure-report.pdfGoogle Scholar
Ryan, R. J. (2014). The U.S. Pension Crisis: What We Need To Do Now to Save America's Pensions. Palm Beach Gardens, FL: Ryan ALM.Google Scholar
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