Wharton Pension Research Council Working Papers

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Working Paper

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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.

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Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. ©2013 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


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

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Date Posted: 26 June 2019