Asset/Liability Modeling

segaladvisors-services-asset-model-172Segal Advisors has performed numerous asset liability modeling (ALM) studies for multiemployer plans, corporate plans, and governmental programs. Each asset/liability study is designed to meet your specific requirements.

Our ALM studies provide projections of plan funding under various sets of assumptions about future conditions, such as demographic trends, the effects of inflation and the performance of capital markets.  ALM is particularly helpful in comparing the effects on plan funding of one or more sets of future "what if" scenarios. The outputs of ALM studies include analyses of emerging trends depicted in sets of graphs and tables that generally cover a 10- to 20-year period.

These projections are made using sophisticated actuarial software. 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.

ALM can assist trustees with pension planning by helping to answer major questions, such as:

  • What is the range of possible and probable funding requirements over the next 10 years?
  • To what extent can future investment returns be expected to improve/jeopardize the plan's funded position?
  • Is the plan likely to experience a funding deficiency and, if so, when is it expected?
  • Is the plan likely to be faced with withdrawal liability?
  • What are the plan's future annual liquidity requirements?
  • How should trustees determine their plan's funding policy?
  • How might plan design changes under consideration affect the plan's long-term financial position?

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, which 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.

Segal Advisors offers two different types of ALM: deterministic and stochastic.

  • Deterministic ALM: Deterministic ALM models 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 can help many organizations gain insight into how their plan would be affected by certain conditions.
  • Stochastic ALM: 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.

To learn more about ALM, contact Dan Westerheide at