  
Long-term funding perspective
A damsel in funding distress. I did what any red-blooded actuary would do in this
situation. I started talking about
the long-term funding perspective.
“Over the long term, the money that goes out from the
plan can’t be any more than the money that comes into the plan.”
I went to the blackboard and drew some boxes.
She’d seen my sketchings before, smiling to let me know
she remembered. She said, “if we
don’t make contributions now, we’ll just have to put more money in later.”
Just like old times, I thought. “The assumptions you select determine when you ask for a
contribution and how well funded the plan is.”
I waited for her to nod before going on. “Ideally, you adopt a set of assumptions that will match
the future as closely as possible. That
gives the best estimate of your real costs and the best picture of where you
stand at any point in time.”
“But even you can’t guarantee the future,” she
said as she rubbed her hands slowly around the Magic 8-Ball sitting on my desk.
“And if we are going to be wrong, my board members want to be safe, not
sorry.” It was good to know that
she wanted to practice safe funding. I
just hoped that it wasn’t too late.
There are dozens of assumptions in an actuarial valuation.
Some big, and some small. Every
one of these assumptions impacts on the plan’s contribution rate and funded
position. In the old days, we might
have gone through them all. Given
the board meeting scheduled for later that day, I suggested that we focus on the
three assumptions that would impact their results the most:
- Investment
return.
- Salary
increases.
- Inflation.
I could see the tension release at the mention of
these assumptions. They were old
friends. We would start with the
assumption that had the biggest impact and work our way down.
| 
