Pensions for Treasurers

Identifying and managing the risks in maintaining a company pension scheme

Course overview

This one day course will explain why Defined Benefit (DB) pension deficits continue to represent a problem. It will identify the risks for the sponsor in maintaining a company pension scheme and indicate how the issues raised can be managed. Pension risks may affect the funding required by the sponsor, and its perception by stakeholders such as banks, bondholders, shareholders, and rating agencies.

Programme

Understanding the Problem

• How did we get here?
  - how factors combined to create the current problems
  - accounting, level of the equity market, level of interest rates, longevity
• Understanding Value Sensitivities
  - a deficit as a liability of the company
  - the profile of pensions cash flows
  - risk of DB schemes versus DC schemes
  - sensitivity factors in long-term annuities and investments
  - application of Value at Risk
• Accounting and Valuation
  - IAS 19 in outline
  - Basis of valuation for IAS 19 versus buy-out
  - 'Smoothing' of changes
  - Accrued Benefit Obligation versus Projected Benefit Obligation
  - Longevity assumptions
  - Implications: the augmented pension
  - balance sheet

Managing the Problem

• Potential Conflicts
  - potential conflicts for the treasurer
  - active versus deferred members
  - managing scheme closure
  - closure to new entrants
  - closure to new accrual
  - enhanced transfer values
• Managing the Sponsor / Pension Scheme Relationship

- creditworthiness of the sponsor
- the problem of ‘dealing with’ trustees
- managing / dealing with trustees’ advisors
- funding the deficit; agreeing the plan to
- eliminate the deficit
- funding issues for the sponsor with a deficit
- the bank / rating agency view

• Derivatives in Pension Risk Management
  - liability driven investment (LDI)
  - using derivatives to aid risk management

What you will gain

Participants will develop a good understanding of the financial and related risks associated with a pension scheme, and the ways in which those risks might be managed. The pitfalls when managing such risks will also be discussed.

Who will benefit?

• Treasury and finance staff with responsibility for managing the pension liability
• HR professionals who need to understand the financial risks of a pension scheme
• Trustees wishing to understand the concerns of their sponsor and the pressures it may be under

Trainer

• Ian Jakeways FCT