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Financial market assumptions and pension plan models: a comment on PIMS model asset markets assumptions*

Published online by Cambridge University Press:  08 April 2015

CHRISTOPHER C. GECZY
CHRISTOPHER C. GECZY*
Affiliation:
Finance Department, The Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA, USA (e-mail: [email protected])
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Abstract

The financial market assumptions of the Pension Benefit Guaranty Corporation (PBGC)'s Pension Insurance Modeling System model are critical inputs to simulations for most apparent uses of the system. They currently appear to be based on a reduced form, ‘classical’ approach to assessing and forecasting the distribution of returns on various classes of input assets, allowing for a fairly sophisticated and useful approach to understanding simulated distributions of potential pension insurance outcomes as well as the net financial status of the PBGC. This technical note discusses some of the capital market side assumptions utilized in the model. It also comments on important related assumptions including the assumed asset allocations of insured plans, making suggestion for possible modification of input assumptions of the model to reflect time variation in financial market return behavior as well as time variation in observed plan allocations.

Keywords

C51C52C58H8PBGCPIMSDefined Benefit Pension PlansMulti-Employer Pension PlansCapital Market Assumptions
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. 127 - 143
Copyright
Copyright © Cambridge University Press 2015 

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Footnotes

*

The author thanks Jeff Brown and staff members of the DOL, PBGC, and SSA for helpful comments and Kyle Binder, Alimu Abudu, and Ankur Dadhania for helpful research assistance. The research reported herein was pursuant to a grant from the US 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. Comments welcome.

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