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Financial Planning And Forecasting
- Develop short-term expense and
contribution forecasts;
Nine months have passed since the last
actuarial valuation. The plan has been on the verge of emerging from
full funding. Investment performance has been somewhat worse than
expected. Will we have to make a contribution next year and, if so, how
much?
- Develop long-term expense
and contribution forecasts;
Our plan has been fully funded since
1990. No contribution has been made since that time and the assets have
continued to perform well. How long is the contribution holiday
projected to continue? What would have to happen to investment
performance to cause us to make a contribution in the next 3 years?
- Link investment policy to
actuarial policy;
Our actuary uses a relatively constant
actuarial interest rate for all of the plans in our public employee
retirement system. Yet we know, at least conceptually, that this rate
should change each year with market conditions. Should we set our asset
allocation relative to the static actuarial measure of liabilities or
should we adopt a market-based approach to liability valuation? How much
difference would it make?
- Calculate the impact of
changes in actuarial assumptions;
Interest rates have declined since
last year. We will probably have to lower our FAS 87 discount rate. How
will be our expense next year be affected by a change in discount rate
of different magnitudes? How much of the change can be offset by
reducing the pay increase assumption?
- Evaluate alternative
funding strategies;
When FAS 87 became a reality we
changed to projected unit credit for funding to be consistent with the
accounting treatment. We now have little debt on our balance sheet, have
a substantial amount of cash and a good portion of our business is with
the government on a cost reimbursement basis. Should we consider putting
more into the pension plan and is there an actuarial cost method which
will allow us to do so?
- Calculate the cost of
potential benefit change;
HR wants to give an ad hoc cost of
living adjustment to retirees in the salaried pension plan. They have
devised seven alternatives for the structure of the cola. "What is the
cost of each alternative?"
- Analyze the impact of
mergers, acquisitions and divestiture on employee benefit
obligations;
The potential seller of the new
division has provided an actuarial report that indicates we would pick
up $12 million in pension liabilities. Using our assumptions, we
calculate the liability to be $18 million. Shouldn't we re-negotiate the
terms of sale?
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