Sensitivity analysis of pension plan liability

[Brad Jacobs]

I am working on article for a benefits class in which I am enrolled and need some data. I am not an actuary nor do I have an actuarial model but am hopeful that a member can assist. I would like to know the sensitivity of returns of pension plan trusts.

For a typical trust, what is the project long-term rate of return? Say it is 7%, what is the company’s pension liability? What happens when the rate is increased to 8%, 9%, 10%, 11% and even 12%? If anyone has a live dataset and model and could provide this information as a favor, I would truly appreciate it. And, if the article ever gets published, I would of course give attribution and the possibility for additional input into the project.

The article is due in just a few days and this information would be quite useful. I would appreciate any help that you could provide.

[SoCalActuary]

Your paper will discuss something that includes other economic issues, namely inflation and economic growth.

In many pension environments, long term returns above the general growth of the economy are correlated with pressure to increase the benefits paid. Often, this is accompanied by actual and anticipated inflation in the general economy.

I will send you a generic and simplified model if time permits.

[david rigby]

Lots of variations. For example, the average age of the population affects this sensitivity, as well as the relative amounts of liability at each age. (Some plans have no retirees, some plans have many.)

The expected asset return may be part of your analysis, but it varies based on how the assets are invested, and does not affect the plan liability (usually).