Actuarial Funding Risk Assessment Report
Pensions are long-term commitments, and like any financial system that spans decades, SCERS must navigate uncertainty such as; markets rising and falling, inflation changing over time, and members living longer than expected. To prepare for these challenges, SCERS produces an Actuarial Funding Risk Assessment Report—a forward-looking analysis of the risks that could affect the plan’s ability to stay fully funded.
Purpose of the Report
The Funding Risk Assessment is designed to answer one critical question: How resilient is SCERS under different future scenarios? Instead of focusing only on a single set of assumptions, the report looks at multiple possible outcomes and evaluates how each could affect the plan’s funding status and contribution requirements.
What the Report Covers
The assessment typically includes:
- Scenario Testing: What happens if investment returns are lower than assumed, or if there is a severe market downturn?
- Contribution Volatility: How might sudden changes in investment results cause spikes or drops in employer contributions?
The report also considers the probability of different outcomes and identifies thresholds where risks could become significant.
Why It Matters
For the Board of Retirement, this report provides critical insight for setting policy. It helps the Board weigh whether contribution policies, funding strategies, or actuarial assumptions should be adjusted to keep the system sustainable. For employers, it highlights the potential for contribution volatility and helps with long-term budget planning. And for members, it reinforces SCERS’ commitment to planning for the future, even under difficult conditions.
A Proactive Tool
Unlike the annual actuarial valuation, which takes a snapshot of the plan as it stands today, the Funding Risk Assessment is a stress test of the future. It is not about predicting outcomes but about preparing for a range of possibilities. By examining risks in this structured way, SCERS can make informed decisions now that will strengthen the system for decades to come.
