عنوان

Pension finance :

1118106369 (hardback)

1118106377

9781118106365 (hardback)

9781118106372

dltt

Pension finance :

[Book]

putting the risks and costs of defined benefit plans back under your control /

M. Barton Waring

xxxiv, 298 pages :

illustrations ;

24 cm

Wiley finance series

Includes bibliographical references (pages 287-292) and index

Foreword -- Preface -- Acknowledgments -- Perspectives on DB plans -- What is economic or market-value accounting? -- What the following chapters provide -- Why managers need to adopt the economic accounting perspective -- Where are we today? -- The accounting always follows the economics -- Historical context: the actuaries' contribution to the existence of pensions -- Conclusion -- What is the right discount rate to use? -- The liability-matching portfolio: general perspective -- Risk-free rate vs. expected return on assets -- "If we can earn 7.5 percent per year over the long term": happy and unhappy asset return distributions -- The employer's experience -- The discount rate is in fact the same on both sides of the full economic balance sheet, but that doesn't mean that the liability changes its value with changes in investment strategy! -- GASB's white paper and public employee fund discount rates -- Conclusion: discount rates -- Appendix: are there market values for pension plans? -- The liability: inherently an economic entity -- A newly formed pension plan -- Multiple correct measures of the accrued portion of the liability but only one parent measure -- Building a pension budget identity -- Full economic normal cost -- Enter the matching principle: normal costs accruing over time -- Normal costs and retirees, active employees, and future employees -- Allocating pension costs to current employees -- Payment patterns other than level payments -- Illustrating normal costs and accrued and total liabilities over time -- Comparing normal cost methods -- Normal costs and contributions: multiple measures? -- Normal cost and agreed levels of benefit security: an accrual method not reliant on the matching principle -- Balance sheet with accruals of an economic measure of periodic normal cost -- Updating the beginning-period pension budget identity -- Summary of discussion of normal costs -- Appendix: computing level payment contributions and normal costs with a handheld calculator In order to gain understanding of the nature of the problem -- Two useful views of the liability's value -- Termination and default risk -- Conclusion -- Pension expense and contributions -- Other components of pension expense in addition to normal cost -- Distinguishing economic from conventional supplemental costs -- Economic pension expense -- Economic pension expense in an accrual system -- Contributions to the asset pool, and the sponsor's credit risk -- Investment returns on contributed assets -- Benefit payments -- The components of economically determined contributions -- An example immediately usable in the boardroom: analyzing contributions for the aggregate plan with an HP 12c -- The volatility of the deficit is equal to the volatility of contributions -- Conclusion -- Investment policy and strategy for investors with liabilities -- The augmented balance sheet: optimizing on the combined risks of the sponsor and the plan -- Brief review of the theory of surplus return and surplus asset allocation -- The elephant in the strategic asset allocation room -- Show me the money: risk control through the liability-matching asset portfolio -- What liability should be hedged In the surplus asset allocation process?: defining capital gains and losses in the accrued liability -- Hurdles to adoption of surplus asset allocation and to holding an LMAP portfolio: why isn't this easier to implement? -- The shape of investment strategy for pension plans using surplus optimization and the two-fund theorem -- Conclusion -- Appendix: why use dual durations in the liability measures? -- Why hold any equities or risky assets? -- Can the sponsor afford the risk if it happens? one part of identifying the organization's tolerance for risk -- Visualizing and comparing return/risk tradeoffs among alternative investment strategy choices -- Controlling economic risk to the surplus equals controlling accounting risks to the plan -- Implementing a RAP in addition to a liability-matching portfolio -- Benefits of surplus optimization and the LMAP when a RAP is held -- Conclusion -- Appendix: when Is a plan truly in surplus? -- Traditional actuarial asset/liability studies -- Modeling in the traditional actuarial pension approach -- Possible false correlations and bad investment strategy results -- Do the results prove the asset/liability method? -- Managing the present value of future contributions through investment strategy -- Conclusion -- Visualizing the required rate of return -- The effect of investment risk on surplus risk and contribution risk over time -- Effect of the required rate of return on investment strategy -- Actuarial confidence in high expected returns -- Presenting the gold watch -- Postscript -- The inviolability of the FEL -- An action plan: something has to be done, but it isn't going to be easy -- Accounting and reporting policy -- Contribution policy and benefit policy -- Investment policy and strategy -- Making these changes is important! -- Only one accred liability, please! -- Articulation between financial statements -- Pension expense -- Smoothing and amortizations? -- Pension contributions -- Financial amortization rather than actuarial amortization -- Reconfiguring the elements of pension expense on the income statement -- Should the pension trust be off the sponsor's balance sheet, or on? -- Financing the PBGC's guarantee, or financing pension plans directly? -- The IRS and pension deductibility -- Summary of public policy suggestions -- Beyond managerial accounting: should accounting and actuarial regulatory frameworks be changed? -- Mark-to-market accounting is not a reason to terminate the plan -- The intuition is already out there -- Our legacy as pension advisors -- Termination or default option -- PBGC put -- Participant call on economic surplus

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"Defined benefit pension plans are in a severe crisis. With nearly a $4 trillion deficit in the U.S. alone, Canada, the UK, Japan, and Holland also suffer from unfunded liabilities. In short, the pension crisis is nearly global in proportion, and there is little likelihood that plan sponsors will be able to come up with the funds to repair the damage. One of the major problems behind the crisis is the approach: pension plans use actuarial science as the basis of assumptions but are subject to the laws of economic finance in terms of their returns. In short, there is a gap between the world presumed by actuaries who determine funding levels and the world as it come to be as determined by market performance and investment outcomes. Waring tackles this thorny issue head on. Well versed in both economic and actuarial science, he walks professionals through the differences and shows why plan sponsors need to focus on the economic account perspective to meaningfully measure present values. Complete coverage of credit risk and the discount rate to determine liability values is examined, contribution levels are then presented based on this revised approach to actuarial accounting. Pension plan sponsors and their employee representatives must face the economics - and adjust their accounting and actuarial view - to gain a true perspective on achieving sustainable benefit levels. Waring is one of the first investment professionals to tackle this controversial topic head on to present realistic solutions to potentially catastrophic problems looming in the very near term"--

Pensions management

Pension trusts-- Management

Pensions-- Finance

Waring, M. Barton

20160309110124.0

[Book]

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