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Completion Time: 25 min
Where Assumptions and Methods Can Go Wrong
- Module Overview
- Advanced Amortization Policy
- Advanced Amortization Policy: Level Dollar
- Advanced Amortization Policy: Level Percent
- Advanced Amortization Policy: Interest on the Debt
- Payroll Growth Assumption: Salaries
- Payroll Growth Assumption: Backloading
- Measuring Money: Market Value of Assets vs. Actuarial Value
- Search for Yield: The Asset Allocation Shift Toward More Risk
Module Overview
There are lots of ways that pension boards can manage their pension debt well, and lots of ways they can make mistakes. Managing the accounting and finances of a defined benefit guaranteed income plan can be done — there are a few well funded pension plans to prove it — but is also a highly complex practice with lots of ways that things can go wrong.
This module will cover key actuarial assumptions and methods that pension boards have to made important decisions about:
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Amortization Policy — methods for designing a payment structure for unfunded liabilities
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Payroll Growth Assumption — an actuarial assumption about how much employees will earn
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Money Measurement — how to define the value of assets under management
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Asset Allocation — how assets under management are actually invested
A previous module has already covered the assumed rate of return (the most important actuarial assumption), so we won’t cover that again here.
