PricewaterhouseCoopers (PwC) has unveiled its Pension Risk Modeler, which uses enterprise risk management techniques that “enable a company to measure and evaluate the potential impact of various pension risk factors, such as fluctuation in assets and interest rates, inflation, and demographic factors such as mortality,” according to the firm. The tool uses randomized Monte Carlo methods and comparison to actual historical events projections to perform real-time scenario testing.
How it Helps
According to PwC, the Pension Risk Modeler helps companies better understand the risks inherent in their benefits program through a series of steps that:
- identify pension risk,
- evaluate the potential impact of various risk factors,
- prioritize actions to address these factors and
- develop/implement risk reduction tactics and strategies aligned with the prioritized objectives.
PwC says that this process can “potentially avoid significant impact to the balance sheet and cash flow, earnings per share and the overall financial performance of the company”.
PwC says that by evaluating the spectrum of risk-mitigation strategies available and measuring their feasibility, effectiveness and impact on the critical aspects of a business, the firm is able to “assist companies in choosing and implementing strategies that best manage the risks inherent in their particular pension programs”.
The process enables the development of a “forward looking approach that incorporates a comprehensive strategy for identifying and prioritizing risks and objectives”. PwC says that the “on-the-fly” scenario modeling approach, can provide employers with results that are easy to understand and communicate.
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