Wednesday, December 31, 2008
Friday, December 12, 2008
- Provides that shortfall amortization contributions will be based on a percentage of the funding target. The percentage will be 92% in 2008, 94% in 2009 and 96% in 2010, before reaching 100%. For example, under PPA a plan funded at 90% in 2008 had to establish an shortfall base equal to the entire 10% unfunded. Under the Act, this same plan would establish a shortfall base of only 2%.
- Permits asset smoothing.
- Provides that for the first plan year beginning on or after 10/1/2008 the test for the restriction on benefit accruals will be done using the greater of the current year or prior year AFTAP.
- Clarifies that plan expenses must be included as part of the target normal cost.
- Clarifies that target normal cost is reduced by the amount of mandatory employee contributions expected to be made during the year.
- Contains other provisions such as a waiver of age 70-1/2 distributions for 2009 for defined contribution plans, multiemployer funding relief, changes to maximum benefits for small employers and airline specific provisions. In addition, the Act includes some technical corrections.
Wednesday, November 26, 2008
Earlier blog posts on the ongoing disaster with the NJ pension system:
June 15, 2007
April 12, 2007
April 6, 2007
March 16, 2007
Thursday, November 20, 2008
Assets of the 100 biggest US company pension plans, which account for 70% of defined benefit pension assets at corporations, fell by an estimated $120bn in October - the largest monthly loss in at least eight years. In 2008, PPA cash requirements were an estimated $32bn, which will likely rise to about $93bn in 2009.
On the funding status side...
If the spread between Treasuries and high-grade corporate bond yields hadn't more than doubled to 3.3 points over the past 12 months, the combined $60 billion surplus for S&P's 1,500 companies at the end of 2007 would now be a deficit of more than $400 billion. With the drop in liabilities due to a higher discount rate, however, the deficit as of Sept. 30 was only $35 billion.
Sunday, November 09, 2008
Those working in the fields of actuarial science and quantitative finance have not always been totally appreciative of each others’ skills. Actuaries have been dealing with randomness and risk in finance for centuries. Quants are the relative newcomers, with all their fancy stochastic mathematics. Rather annoyingly for actuaries, quants came along late in the game and thanks to one piece of insight in the early 1970s completely changed the face of the valuation of risk.
The insight I refer to is the concept of dynamic hedging, first published by Black, Scholes and Merton in 1973. Before 1973, derivatives were being valued using the ‘actuarial method’, in a sense relying, as actuaries always have, on the Central Limit Theorem. Since 1973 all that has been made redundant. Quants have ruled the financial roost. However, this might just be the time for actuaries to fight back.
I am putting the finishing touches to this article a few days after the first anniversary of the ‘day that quant died’. In early August 2007, a number of high-profile and previously successful quantitative hedge funds suffered large losses. People said that their models “just stopped working”. The year since has seen a lot of soul searching by quants — how could this happen when they’ve got such incredible models?
In my view, the main reason why quantitative finance is in a mess is because of complexity and obscurity. Quants are making their models increasingly complicated, in the belief they are making improvements. This is not the case. More often than not each ‘improvement’ is a step backwards. If this were a proper hard science then there would be a reason for trying to perfect models. But finance is not a hard science, one in which you can conduct experiments for which the results are repeatable. Finance, thanks to it being underpinned by human beings and their wonderfully irrational behaviour, is forever changing. It is, therefore, much better to focus attention on making the models robust and transparent rather than ever more intricate.
As I mentioned in a recent blog, there is a maths sweet spot in quant finance. The models should not be too elementary so as to make it impossible to invent new structured products, nor should they be so abstract as to be easily misunderstood by all except their inventor (and sometimes even by them), with the obvious and financially dangerous consequences. Our goal is to make quant finance practical, understandable and, above all, safe.
When banks sell a contract they do so assuming it is going to make a profit. They use complex models, with sophisticated numerical solutions, to come up with the perfect value. Having gone to all that effort they then throw it into the same pot as all the others and risk-manage en masse. The funny thing is they never know whether each individual contract has “washed its own face”. Sure they know whether the pot has made money, their bonus is tied to it. But each contract? It makes good sense to risk-manage all contracts together but not to go into such obsessive detail in valuation when ultimately it’s the portfolio that makes money, especially if the basic models are so dodgy. The theory of quant finance and the practice diverge. Money is made by portfolios, not by individual contracts. In other words, quants make money from the Central Limit Theorem, just like actuaries, it’s just that quants are loath to admit it! Ironic.
It’s about time that actuaries got more involved in quantitative finance and brought some common sense back into this field. We need models people can understand and a greater respect for risk. Actuaries and quants have complementary skill sets. What high finance needs now are precisely the skills that actuaries have, a deep understanding of statistics, an historical perspective, and a willingness to work with data.
Thanks to CP for the link.
Thursday, October 30, 2008
Hartford fell 10.24 (51.56%) to 9.62 after taking a $2.5 billion investment from German insurer Allianz.
In much more important newsThe FDIC's powers could be expanded if Congress decides to shift insurance companies from state regulation to federal regulation, Sheila Bair said. The FDIC could start providing guarantees for insurance companies, much like it already guarantees the deposits of most US banks, if the insurance industry comes under federal regulation.
Friday, October 24, 2008
In response to the announcement, William Stander, assistant vice president and regional manager of the Property Casualty Insurers Association of America referenced SB 50A passed during the 2003 Florida Legislative Session.
"Since the 2003 reform bill passed, workers compensation rates have decreased by over 60 percent, saving employers hundreds of millions of dollars annually," Stander said. "Eliminating hourly attorneys' fees, a key cost driver, was an integral component to the 2003 legislation." Stander added that the Oct. 23 decision will drive more litigation back into the system and drain more money from employers' pockets.
According to the Workers' Compensation Coalition for Business & Insurance Industry, the Court's decision could negatively impact Florida's employees through potential rate increases that will constrict job growth and employee raises. With the restoration of hourly attorney fees, the Court has revived one of the system's prime drivers of claim costs -- excessive attorney involvement, WCCBII added.
"Florida's workers' compensation system averted a crisis with landmark reforms in 2003, which eliminated unaffordable rates, widespread fraud and poor compliance with insurance requirements, while providing reasonably priced workers' compensation insurance that covered more employees than ever before," said Tamela Perdue, WCCBII chair. "As a result, injured workers continued to receive benefits, found legal representation when needed, and returned to work. Unfortunately, today's Supreme Court decision has put us right back into another potential crisis."
[Thanks to DVD for the article]
Wednesday, September 17, 2008
Tuesday, September 16, 2008
Monday, September 15, 2008
Saturday, September 06, 2008
[Thanks to MPC for the link]
Saturday, August 23, 2008
Friday, July 11, 2008
Tuesday, July 01, 2008
Friday, May 16, 2008
Tuesday, May 13, 2008
Again, I am wondering where ExcellerateHRO measures up in all this.
Edited (6/9/09) to add: Towers Perrin has sold its 15% stake in ExcellerateHRO to HP. I wonder if HP will keep the company as a division of its business or spin it off?
Monday, May 12, 2008
This could be interesting for the HR outsourcing industry. EDS owns 85% of ExcellerateHRO; I doubt this is a business HP wants anything to do with that particular business. I'd wager they will put their interest in ExcellerateHRO on the block as soon after buying EDS as their contractual obligations allow.
Monday, May 05, 2008
Friday, February 29, 2008
Wachovia is shifting HR functions that it outsourced in 2005 to Hewitt Associates back in-house or to other vendors. HR head Shannon McFayden said the bank will transition tasks such as payroll, pay-related customer service and human resources technology back to Wachovia or to other vendors. Benefits administration and benefits customer service will stay with Hewitt. Moving HR functions back in-house will take up to 18 months. Bank spokeswoman Christy Phillips-Brown could not comment on Hewitt's performance, but Wachovia and Hewitt "agreed this was the best decision for our companies." Hewitt spokeswoman Amy Wulfestieg said the company will work closely with Wachovia in the transition and looks forward to "building on our long-standing partnership together."
Wachovia is taking back a number of HR processes it had outsourced to Hewitt Associates, a potential blow for the BPO provider. The contract, which was one of a slew of wins for Hewitt in the wake of its Exult acquisition, was valued at $450 million. The deal was consummated in Hewitt’s glory days, when both buyers and vendors had high expectations of BPO. “I believe that this was one of those deals signed in the heyday with entirely too much optimism on both sides,” says Naomi Bloom, an industry consultant. Since then, Hewitt has admitted to struggling with its HR BPO business. “They haven’t made a mystery of the fact that they had gotten bogged under by a number of the contracts that they signed in the months after the Exult deal,” IDC analyst Lisa Rowan says. Many of these deals were “lift and shift” transactions, where the buyers expected the vendor to just take over all of their HR processes and do them at less cost. The Wachovia contract was one of these deals, according to one person familiar with the arrangement. It might actually be a relief for Hewitt to be able to offload some of this work and focus on what it does best, which is benefits administration, Rowan says. “If I had to get out my crystal ball, I would say they are going to go back to their sweet spot and just do benefits administration going forward,” she says. But Hewitt maintains it is sticking to the business. But whether Hewitt will be able to turn around its HR BPO business at the pace that shareholders want still remains to be seen.
Thursday, February 28, 2008
Monday, February 11, 2008
AIG still calculating loss on some credit products - MarketWatch
AIG unsure of value of some of its credit derivatives - MarketWatch
AIG auditors cite "material weakness" in financial reporting - MarketWatch
That can't be good. Stock has been pretty much in freefall since the opening bell, as of 10:30 it is down 11.2% at $45, although the last few ticks indicate that might actually be the bottom.
Wednesday, January 30, 2008
Justice Scalia, writing for the Court, started off by presenting the fiduciary issue and then went on to acknowledge the plausibility of PACE’s argument. He immediately sidestepped the interesting fiduciary issue and launched into a non-fiduciary analysis from which it would never return. The Court restricted its analysis to whether a plan can be terminated through a plan merger. Ultimately, the answer was no.
It's a shame that the Court chose not to take up the fiduciary question. I swear more bad law comes out of the 9th Circuit than all the other courts of appeal put together. I would have liked the Court to go on record that BOTH parts of the decision were ludicrous, rather than restricting themselves to just one part of the decision.
Thursday, January 17, 2008
Wednesday, January 16, 2008
What happens when the idiots who do this have $0 in their 401(k)? Are they going to tax those of us who don't have shit for brains to "help the poor"? Seriously, I feel like just tattooing sucker on my forehead.