Industry News

Recently, the American Academy of Actuaries (AAA) published its issue brief, The Actuary’s Role in Public Pension ALM Studies. This publication was prepared by members of the AAA’s Public Plans Committee. The brief provides information on an approach for public pension plans to help improve risk management by using an Asset Liability Management (ALM) study. Although some ALM studies may be conducted by investment advisors alone, the brief discusses the importance of collaborating with the plan’s actuary to ensure a comprehensive risk management approach.

According to the brief, “An ALM study takes a holistic approach that integrates forecasts of assets and liabilities to inform policy decisions for managing a pension plan. It can be used to assess a pension plan’s investment policy, contribution policy, or any other policies or measures that depend on the changes in assets and liabilities under various scenarios.”

The brief concludes, “To maximize the benefits from an ALM study, the analysis should go beyond investment performance to include a range of implications such as contribution requirements, funded status, and, when applicable, changes in benefits. Actuaries, with their expertise in liability measurement and funding methods, are critical to understanding tradeoffs involving plan funding. Investment professionals bring insight into the asset and operational risks of investment policies and portfolios. Ultimately, combining the expertise of actuaries and investment professionals may allow the system to better satisfy the fiduciary responsibilities of governing a public pension plan.”

Among other members, the AAA’s Public Plans Committee includes Judith Kermans, President, CEO and Senior Consultant at GRS. In addition, the AAA’s Committee recognized the contributions of James Rizzo, a retired Senior Consultant of GRS. 

The issue brief is available here.