The Securities and Exchange Commission's change in attitude on pension plans discounting future liabilities could substantially impact most U.S. pension plans in a negative way, said Jim Kaplan, president of Capital Management Sciences, a software-maker.
Mr. Kaplan said the SEC has taken a firm stand on the method used by pension funds to discount future liabilities, and the SEC's position is forcing plans to use more realistic methods for valuing liabilities based on market factors.
CMS, Los Angeles, and BARRA Inc., Berkeley, are separately providing tools to pension fund managers to help them determine the impact of various discount rates and the best strategy to minimize negative consequences.
CMS' Asset-Liability System offers an array of cash flow and duration match techniques, including single and multi-period immunization, horizon matching and cash matching.
CMS's Cashflow Testing/Reg 126 system tests portfolios under different interest rate scenarios to determine the solvency of asset-liabilities.
The New York State Insurance Commission's Regulation 126 is a guideline for life insurance companies to test the adequacy of their investment cash-flows, to satisfy their liabilities under different interest rate and pre-payment scenarios looking out over a 10-year horizon, said Deepak Gulrajani, a product manager with BARRA. Any life insurance company that does business in New York has to follow the guidelines, and the guidelines are widely followed.
The National Association of Insurance Commissioners is also trying to establish a set of guidelines to test the riskiness of the investment portfolios. Most of these requirements have come about because of collateralized mortgage obligations, but the applications are applicable to an entire portfolio of securities, not just to CMOs in those portfolios.
CMS' BondEdge also provides current pricing through its data base, which can be updated daily or monthly.
BARRA has added an enhancement to its U.S. Bond Analysis System software that allows insurance companies and money managers to test cash flows of fixed-income portfolios under seven pre-defined scenarios listed in the New York State Insurance Commission guidelines.
The guidelines examine the asset and liability relationship of life insurance company funds under various interest rate scenarios in the commission's Regulation 126.
Users of the software enhancement also can specify their own interest rate scenarios over a 10-year or other horizon, vary reinvestment rate assumptions, specify pre-payment speed for mortgages, generate periodic cash flows and measure cash surplus or deficit during the period, said Deepak Gulrajani, senior product manager at BARRA.
BARRA also has released versions for the United Kingdom of its UNIX-based applications UNIX Portfolio Risk Characterization and UNIX Optimization for brokers, dealers and money managers. UPORCH and UOPS are popular portfolio risk characterization and portfolio construction programs. The broker/dealer versions have added features related to trading.
Thomson forms new unit
BOSTON - Thomson Financial Services announced formation of a business unit that will provide real-time electronic trade confirmation services for domestic trading compliance and cross-border trade communication.
The business unit is called Electronic Settlements Group, and it is within Thomson Trading Services Inc. P. Howard Edelstein, who previously held senior management positions at Knight-Ridder Financial and Dow Jones/Telerate, has been name president of ESG.
Technology enhances use of plans
WASHINGTON - The Wyatt Co. has developed a program called Virtual HR that uses technology to put employees in closer contact with their human resource systems.
Virtual HR uses such as Touch-Tone telephones and interactive, multimedia personal computers to transform the way human resource programs are operated, said Steve McCormick, a Wyatt consultant.
One example of such technology in use, said Mr. McCormick, is Apple Computer Co., where employees use desktop computers to enroll and invest in their 401(k) plan or to apply for and process a loan. Mr. McCormick said as a result of this desktop computer use, Apple has seen a dramatic increase in its 401(k) plan enrollment. Also, 70% of Apple's plan participants shifted from conservative investments to more aggressive equity investment funds.
Apple has a $290 million 401(k) plan with six investment options, said Sally Gottlieb, benefits manager at Apple. The options are Fidelity's Retirement Government Money Market Fund, Intermediate Bond Fund, Balanced Fund, Growth and Income Fund, Magellan Fund and Overseas Fund.
Apple got Wyatt's help in developing Mac401(k), which is the software Apple employees use to enroll in the plan and to project their account balances. MacLoan, which Wyatt also helped to develop, is software Apple employees use to request a loan. Apple has 8,500 employees in the United States, and most of the employees have personal computers at their desks.
Another example is Merck & Co., where employees make employee benefit selections on computer screens stationed in kiosks. As a result of this method of making selections, Merck employees have expressed high satisfaction with the system that has saved Merck money and improved integrity of its enrollment data, said Mr. McCormick.
Reuters buys Teknekron
LONDON - Officials for Reuters PLC, London, said they are buying Teknekron Software Systems, Palo Alto, Calif., for $125.1 million. Reuters and Teknekron will develop software interfaces that will make it easier to use third-party applications with Reuters and Teknekron data system.