Consulting Presentation

1
Enterprise Risk Management Part III DB Plan
Value Added
Dimitry Mindlin, ASA, MAAA, PhD Wilshire
Associates, Inc.
2006 SOA/CCA Employee Benefits Spring Meeting May
17, 2006
2
Value of the Enterprise
Value PV of Future Profits
Profit Revenue - Cost
DB Plan Is Part of Labor Cost
3
Value of the DB Plan Participants
Well-funded plan great sense of security that
goes beyond accounting assets and liabilities
Poorly-funded plan employees demand other forms
of compensation as there is no DB plan
ITS ALL ABOUT EDUCATION AND COMMUNICATIONS
4
Value of the DB Plan Sponsor

• Flexible human resource management tool
• Tax-advantaged funding
• Low cost asset management
• Ability to utilize sophisticated financial
  instruments

ITS ALL ABOUT COST
5
DB Plan Risks

• Insufficient assets risk
• Insolvency risk
• Financial statement risk
• Interest rate risk
• High required contribution risk
• Inflation risk
• Headline risk
• Many others

6
Cost vs. Risk
Theres no risk that cant be minimized via
liberal application of money
7
Cost of Running a DB Plan
Cost (PV of future contributions) PV of future
benefits - MVA
PV should reflect the fact that future benefits
are funded by means of investing in risky assets
8
To pay 100 in 10 years
Future value
Present value
9
Future Values (50 now)
100 stocks
100 bonds
10
Buy some good stock. Hold it till it goes up,
then sell it. If it don't go up, don't buy it.
Will Rogers
11
Present Values (50 now)
100 stocks
100 bonds
12
Discuss how current regulatory constraints stand
in the way of value-added design and limit the
ability to manage risk

• Current regulatory constraints cant accommodate
  investors in risky assets
• Forward-looking cost-risk analysis is needed
• Windmill Fighters

13
Life Outside Regulated Reports
Source yahoo.com, MSFT, May 16, 2006