Financial Economics. A presentation to the 2009 Public Pension Financial Forum by Paul Zorn October 19, 2009 – Sacramento, California. Overview. Financial Economics and the MVL Background Overview of FE and MVL Concerns with the FE Approach GRS Paper for the Society of Actuaries
A presentation to the
2009 Public Pension Financial Forum
by Paul Zorn
October 19, 2009 – Sacramento, California
Financial Economics and the MVL
GRS Paper on Actuarial Methods and Public Pension Funding Objectives
MVL rate = 13.9%
Conventional rate = 7.0%
MVL rate = 4.3%
Conventional rate = 8.5%
MVL NC = 35.8%
Conventional NC = 8.7%
MVL NC = 6.2%
Conventional NC = 7.0%
MVL liabilities grew by more than $1.6 billion each year.
MVL liabilities approximately half of conventional liabilities.
MVL funded level is over 100% at times when conventional funded level is below 80%. This is due primarily to discount rates.
MVL funded level is more volatile than under the conventional approach due to both the discount rates and use of the market value of assets.
MVL contributions largely driven by discount rates. Note that even with a 30-year open amortization of UAL, MVL contribution rates are highly volatile.
MVL Assets Invested in Long-Term Government Bonds
MVL funded ratio with government bond portfolio appears to converge to about 90%.
MVL Contributions Based on Shorter Amortization Periods
Generally, shortening the amortization period increases contribution rate volatility.