Several years have passed, and you have been asked to review the current tracking and projection model to determine if it is still appropriate for the pension plan. For the most part, the model has generally been reliable. However, there have been some issues related to the alignment of the initial assumptions setting with the emerging experience. Additionally, some other items were brought to your attention:
• The timing of the data feed related to the future asset return and discount rate assumptions from the third-party vendor has proven to be unreliable at times. The CFO has commented as such when monthly reports were delayed as a result.
o Also due to technical issues, the feed that was intended to be automatic has at times needed to be imported manually, which has consumed significant resources.
• Intramonth benchmarking has generally been reliable, however, there were several instances when experience deviated from benchmarks and significant true-ups were required.
• Forecasted contributions have generally created an accurate picture of future expectations on a deterministic basis. However, the CFO has asked if stochastic projections are possible, to be able to visualize a funnel of doubt based on 1000 different scenarios.
• Potential issues with the tracker given that liability cash flows are only updated annually.
In light of these observations, your manager has asked you to produce two internal documents for your findings:
1. In the first document, your manager would like a detailed analysis of the challenges surrounding the model, including the appropriateness of the assumptions. In an informal response, recommend ways that these can be tested and be sure to address the following:
• General recommendations for improvements based on the experience listed above and consider any other potential feedback that could be solicited from others, both internal and external.
• Model revisions necessary to implement recommendations.
2. In the second document, your manager would like a maintenance document that can be used as a guide going forward. Outline potential procedures in a formal document and be sure to include the following:
• Data and systems required to monitor future experience.
• Processes to implement future revisions to the model.
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