Utilizing technology to help pension plans manage risk

With cutting-edge risk management platforms, a lot of the legwork is already taken care of, enabling reaction times to be transformed from weeks or months, to a matter of days. (Photo: Shutterstock)

Managing risk is a growing priority for U.S. defined benefit (DB) pension plans. Market shifts, tax deductions and changes in accounting procedures — combined with rising Pension Benefit Guaranty Corporation (PBGC) premiums — are driving DB plans to assess how soon they want to terminate and the best way to do it. Having effective risk management solutions can help plans respond efficiently and take advantage of such developments.

Historically, pension plan funded status was only calculated once or twice a year. Indeed, prior to technology developments, if a market movement occurred, actuaries would be required to go back to a liability valuation system, roll forward the most recent year-end figures to the most recent date, and gather updated investment information from their investment advisor partners. By this time, a couple of weeks could have passed by and a chance to lock in funding improvements may have been missed, as the market may have corrected.