A financial services company emerging from a divestiture sought Milliman’s assistance with the subsequent re-risking of its defined benefit (DB) pension plan’s investment portfolio. The plan sponsor wanted to explore investment options that would best allow it to meet its future contribution requirements while limiting the risk of being underfunded on either an accounting or Pension Benefit Guaranty Corporation (PBGC) basis. The plan sponsor also wanted to understand the impact on accounting expense and balance sheet volatility as a result of investment allocation changes where the employer would take on more equity exposure.
Milliman consultants performed an asset liability modeling (ALM) study to review the company’s investment policy statement, understand its risk tolerance, set achievable financial goals, and present projections of assets and liabilities. The goal of the ALM study was to estimate expected levels, trends, and possible variability over the next 10 years of the plan’s annual required contributions, funded status, and accounting expense under the current policy asset allocation and several alternative asset allocations based on the client’s input.
To learn more about this endeavor, read Zorast Wadia’s case study “Assisting a plan sponsor with its investment portfolio using asset liability modeling.”