A new free tool from Rocaton Investment Advisors LLC allows corporate pension plans to assess and identify funded status risk in their plans at a time when investment returns aren't keeping up with soaring pension liabilities.
PlanRisk uses data from thousands of pension plans' Form 5500 filings and Rocaton's own capital markets assumptions, such as risk return and correlation assumptions, to allow plan executives to assess their funded status ranking compared to industry peers and similar sized plans, said Adam Wheat, partner and consultant at Norwalk, Conn.-based Rocaton. The capital markets assumptions are updated on a quarterly basis.
“What's been lacking is the opportunity to say "what makes sense to me and how does that compare to peers,'” said Christopher Cesare, partner and consultant at Rocaton. “There's always the desire to compare what you're doing to others.”
The data in the PlanRisk tool goes back to 2009 and shows how specific asset allocations performed in any given time period, including 15- and 90-day volatility ratings and changes in assets and liabilities. The tool provides volatility information both on an asset-only basis and relative to a liability benchmark. Users can identify the sources of funded status risk, such as equity and interest rate risk, and how that affects the funded status of the plan.
“This type of comparison could be very interesting for plan sponsors,” Mr. Cesare said. “They can come up with a policy that makes the most sense for their situation ... there is a clear change from recent years when the focus was on asset risk.”
The PlanRisk tool's embedded technology offers users the opportunity to play around with asset allocations and duration to see changes in funded status risk and their effects on assets and liabilities. Users can also narrow comparisons to include only cash balance plans or frozen pension plans.
Plan executives can also use the tool to make trial adjustments to how their plan is structured to achieve desirable results for improving funded status. They can compare their plan to one with a traditional 60% equity, 40% fixed-income allocation or one employing a liability-driven investing strategy, usually with a very high fixed-income allocation to match liability growth.
“The tool allows plan sponsors to ask, "What if I had done that?' ” Mr. Cesare said.
Plan executives can compare their pension plans to ones with a similar participant size as well as plans in different industries.
“It allows people to figure out one allocation compared to another,” Mr. Wheat said.
Rocaton's team spent about a year developing the resource tool, led by James Rhodes, chief technology officer. Mr. Cesare said Rocaton was interested in taking on the endeavor as pension risk management has become “front and center with corporate America.”
“We've taken the opportunity to blend the approach we take (at Rocaton) ... and applied it to a universe of hundreds and hundreds of pension plans,” Mr. Cesare said.
Form 5500 data is automatically loaded into PlanRisk in a uniform format as it is released by companies. For 2011, there are more than 9,000 plans' data embedded in the risk assessment tool. The 2009 data includes about 15,000 plans and 2010, 13,000 plans.
Only plans with more than $100 million in assets, including master trusts, are included in funded status risk rankings. Currently, about 2,000 plans are ranked.
“This tool will allow clients and corporate America to compare their risk embedded in pension plans compared to other plans,” Mr. Cesare said.
PlanRisk is available online at www.planrisk.com.
This article originally appeared in the November 26, 2012 print issue as, "New Rocaton tool allows plans to assess funded status risk".