Monday, August 29, 2011

Waring's new book, Pension Finance now available

This long-awaited book on pension finance and funding is now available.
This book is a must-read for pension actuaries, board members, executives, employee group representatives, staff members, consultants, accountants, and investment managers. Pension plans can be managed in a low risk, predictable manner, with this management accounting approach.

The book re-examines the actuarial method of handling pension finance, based as it is on the archaic expected return assumption, and re-writes all key aspects replacing this old method with current approaches based on fair market values and market-determined discount rates. As a reward for doing this, the reader will learn that all but one of the important pension risks can be managed in this method--risks or volatilities in pension expense, in pension contributions, and in surplus (or equivalently, A/L ratios). Investment policies designed first to hedge the market version of the liability will accomplish this very desireable result. Only demographic risk--surprises in longevity, retirement age, etc., cannot be managed through investment policy. This is in stark contrast to prior methods, which have proven themselves unpleasantly risky, resulting in today's dramatically low funded ratios and a rush to terminate DB plans by many sponsors.

The book shows dramatically how the old methods add to pension risk, increasing the probabilities of higher than expected contributions and pension expense, and lower than expected funding ratios. Three chapters are devoted to discount rates and to debunking the expected return assumption.

The book also addresses public policy issues associated with accounting and reporting requirements for pension plans, and it provides a blueprint for underfunded plans to use in order to improved their chance of paying off benefits.

The Foreword is written by Robert C. Merton of MIT.

Publisher's web page: