Risk Assessment & Mitigation

Managing the ups and downs of retirement contributions is a major concern for employers. Because plans can face significant fluctuations in contributions from year to year, you need tools that can help predict how changes in economic and budgetary conditions could affect plan contributions and what steps you can take to mitigate your risk.

Sibson Consulting's asset-liability modeling (ALM) is a tool that can be used to make sound decisions regarding plan assets and liabilities. It is particularly helpful in comparing the effects on plan funding of one or more sets of future "what if" scenarios. ALM services are provided by Segal Marco Advisors, our SEC-registered investment solutions affiliate.

ALM can be applied to every part of the plan process: plan design, plan governance and investment management. You should especially consider ALM if you are contemplating changes to:

  • Cash outflow and liquidity requirements
  • Contribution levels
  • Plan design, funding method or asset allocation changes

What is Asset-Liability Modeling?

ALM looks at two different categories of events that can affect your plan: changes that you can control, such as funding method, benefit design or asset allocation and changes that you cannot control, such as investment returns, market volatility or inflation.

We identify the likelihood and impact of changes in these elements — this process allows you to adjust investment and funding policies. In addition, it provides you with a deeper understanding of how alternative investment strategies, benefit designs and funding methods interact and influence funding levels and contribution requirements.

Sibson offers two different types of ALM: deterministic and stochastic.

  • Deterministic ALM: a specific set of assumptions, giving you a sense of how the plan will look under very specific scenarios. While it does not take into account any alternative outcomes, for some organizations, deterministic ALM may be enough.
  • Stochastic ALM: gives you insight into the probability of the amount and timing of expected costs, as well as the range of expected results, and the likelihood of each outcome occurring. The simulation involves modeling thousands of long-term forecasts under future economic scenarios. The influence that each of these economic scenarios will have on pension liabilities and trust assets is then measured and recorded. Stochastic ALM gives you a view of the overall long-term financing of the plan that neither a single-year actuarial valuation nor a deterministic projection can provide.

Why Should You Use Asset-Liability Modeling?

  • ALM provides a platform for decision-making. By analyzing proposed changes in the asset portfolio, plan design or funding policy, you can see the likely future impact of current choices.
  • The ALM process evidences due diligence in support of fiduciary obligations of the plan sponsor.
  • As opposed to asset allocation studies, which only measure the variability of portfolio returns, an ALM study measures actuarial funding risks.

Why Choose Sibson?

We provide independent consulting advice and are able to make unbiased recommendations because we are not associated with any asset manager or brokerage firms.

We use one of the premier asset-liability software models in the industry, developed by Dr. Irwin Tepper, a leader in the field of ALM. Our results-oriented consulting approach  coupled with input from the plan's investment advisors  combines actuarial and investment expertise with a clear, accurate and objective focus on each client's needs.

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