System and method for de-risking a pension fund

Abstract

A system for de-risking a pension fund, the system including: an input module for receiving asset class forecasts; a modeling module for modeling a plurality of portfolios based on the asset class forecasts to provide a de-risking framework; an asset mix module for receiving an asset mix for each of the model portfolios based on the de-risking framework; a database for storing data related to the asset class forecasts, the model portfolios, and asset mix; a processor configured to monitor the model portfolios for performance within the de-risking framework by: calculating an indicator of funded status volatility; comparing the indicator with a benchmark; and reporting the result. In particular, the indicator of funded status volatility is a liability tracking error and the benchmark is the liability tracking error of a conventional or standard pension portfolio.

What is claimed is: 
     
         1 . A method for de-risking a pension fund, the method comprising:
 developing asset class forecasts;   modeling a plurality of portfolios based on the asset class forecasts to provide a de-risking framework;   determining asset mix for each of the model portfolios based on the de-risking framework; and   monitoring the model portfolios for performance within the de-risking framework by:
 calculating an indicator of funded status volatility; and 
 comparing the indicator with a benchmark. 
   
     
     
         2 . A method according to  claim 1  further comprising back-testing the model portfolios against historical data. 
     
     
         3 . A method according to  claim 1  wherein the plurality of portfolios comprises 10 or fewer portfolios. 
     
     
         4 . A method according to  claim 1  wherein the plurality of portfolios comprises 6 or fewer portfolios. 
     
     
         5 . A method according to  claim 1  wherein the plurality of portfolios comprises at least one portfolio for under-funded status and at least one portfolio for over-funded status. 
     
     
         6 . A method according to  claim 1  wherein the indicator comprises a liability tracking error based on comparing the portfolio with a liability proxy. 
     
     
         7 . A method according to  claim 6  wherein the benchmark is the liability tracking error of a standard pension portfolio. 
     
     
         8 . A method according to  claim 1  wherein the de-risking framework comprises providing portfolios for a plurality of funded status levels. 
     
     
         9 . A method according to  claim 8  wherein the plurality of funded status levels comprise: 80%, 90%, 100% and 105% funded status. 
     
     
         10 . A system for de-risking a pension fund, the system comprising:
 an input module for receiving asset class forecasts;   a modeling module for modeling a plurality of portfolios based on the asset class forecasts to provide a de-risking framework;   an asset mix module for receiving an asset mix for each of the model portfolios based on the de-risking framework;   a database for storing data related to the asset class forecasts, the model portfolios, and asset mix;   a processor configured to monitor the model portfolios for performance within the de-risking framework by:
 calculating an indicator of funded status volatility; 
 comparing the indicator with a benchmark; and 
 reporting the result. 
   
     
     
         11 . A system according to  claim 10  further comprising a back-testing module for back-testing the model portfolios based on historical data. 
     
     
         12 . A system according to  claim 10  wherein the plurality of portfolios comprises 10 or fewer portfolios. 
     
     
         13 . A system according to  claim 10  wherein the plurality of portfolios comprises 6 or fewer portfolios. 
     
     
         14 . A system according to  claim 10  wherein the plurality of portfolios comprises at least one portfolio for under-funded status and at least one portfolio for over-funded status. 
     
     
         15 . A system according to  claim 10  wherein the indicator comprises a liability tracking error based on comparing the portfolio with a liability proxy. 
     
     
         16 . A system according to  claim 15  wherein the benchmark is the liability tracking error of a standard pension portfolio. 
     
     
         17 . A system according to  claim 10  wherein the de-risking framework comprises providing portfolios for a plurality of funded status levels. 
     
     
         18 . A system according to  claim 17  wherein the plurality of funded status levels comprise: 80%, 90%, 100% and 105% funded status.