QMS Advisors Asset Liability Management (ALM) studies provide the client with 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. QMS Advisors relies on the client’s actuarial information to derive the plan’s funding projections by utilizing sophisticated proprietary software.

 

ALM studies support trustees faced with planning decisions by providing critical answers to complex stochastic problems such as:

• Determining the plan’s range of probable funded position and associated funding requirements over time.
• Assessing the likelihood of funding deficiencies across time horizons.
• Evaluating latent withdrawal liabilities and annual liquidity requirements. 

ALM studies help trustees make informed decisions on:

• Plan design changes and their impact on the fund’s long-term financial position.
• Determining the plan's optimal funding policy.

ALM studies further help trustees:

• As opposed to asset allocation studies, which only measure the variability of portfolio returns, an ALM study measures actuarial funding risks.
• Performing recurring ALM studies and implementing robust related ALM processes provide evidence of due diligence in support of the fiduciary obligations of the plan sponsor.

Variables that can affect our clients’ plan can be broken down in two different categories:

 

QMS Advisors offers two distinct methodologies and related levels of services when implementing ALM studies; a deterministic and a stochastic approach:

 

• Deterministic ALM analyses that are based on a specific set of assumptions, and that provide trustees with an assessment of how the plan will behave under a set of predetermined scenarios. While the approach does not offer outcomes other than the ones resulting from the predefined set of assumptions, it can however help our clients gain insights into how their plan would be affected by a set of predefined conditions.
• Stochastic ALM models provide trustees with probability weighted ranges, or likelihoods, attached to their plan’s amount and timing of expected costs and results. Our framework is both arbitrage-free and market-consistent. It involves modeling thousands of long-term forecasts under several future economic scenarios, and integrates multiple critical stylized facts such as fat-tailed distributions, mean-reversion, etc. 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 based on realistic market dynamics that neither a single-year actuarial valuation nor a deterministic projection can provide.