A Review of the Pension Benefit Guaranty Corporation Pension Insurance Modeling System

This paper provides an independent review and evaluation of the PBGC's Pension Insurance Modeling System (PIMS). Our analysis suggests that the PIMS model was, in many ways, “state-of-the-art” when it was created approximately two decades ago. However, several key components of the model have not been revised to reflect the availability of new tools, new insights from the academic literature, or even new data. A key finding of our review is that the limited treatment of correlated risk factors arising from the macroeconomic environment is likely to substantially understate the degree of fiscal risk to PBGC's insurance programs. Our review provides a number of specific observations about the model that could be used to guide future revisions to the model in this respect, particularly with regard to the modeling of the bankruptcy and financial market processes