FutureCost gives corporate, multiemployer, and public pension plan sponsors an exclusive window to the future for making smart decisions today.
Project (and protect) your defined benefit plan's future
FutureCost is a powerful modeling tool that projects the assets and liabilities of a pension plan into the future. For each year, full actuarial valuation results are produced, including plan contribution requirements, funded status, accounting expense, and balance sheet impacts. The model can be run with one or more deterministic scenarios for future liability discount rates, inflation, investment returns, and contribution patterns, or can be used to generate a full set of stochastic results that provide the sponsor with a range of possible outcomes for each measure and the estimated probability of those outcomes.
Ask questions and expect answers
There is no limit to the number of scenarios that FutureCost can project in order to help plan sponsors answer complex "what if?" questions about future pension plan obligations, including:
- What if liability discount rates fluctuate?
- What if asset returns are different than expected?
- What if we make an investment strategy change?
- What if we come up with a different contribution strategy?
- What if we make a benefit change?
- What if the covered population changes?
FutureCost provides a greater understanding of the risk/reward factors of alternative investment strategies in terms of key variables (plan contributions, funded ratios, and accounting values).
- Informs plan sponsors about the possible range of pension plan contributions and accounting expense over a period of 10 years or more
- Helps plan sponsors decide when to implement plan design changes, if at all
- Arms plan sponsors with the information needed to make sound risk-budgeting decisions about plan assets
The Pension Protection Act of 2006 (PPA) and subsequent legislation has given plan sponsors several choices to consider, among these being different asset methods and discount rates. FutureCost helps sponsors sort through these choices and figure out which are most compatible with the plan's current investment, contribution, and benefits strategies.
Further, corporate pension plan liabilities are now essentially "marked to market" for funding and accounting calculations. In a marked-to-market world, there is a tremendous amount of asset and liability volatility. FutureCost helps interpret and manage such volatilities with relative ease, helping plan sponsors to focus on liability-driven investment strategies rather than asset and liability management complexities.
The PPA made significant changes to the funding rules for multiemployer plans, requiring actuarial projections to determine a plan's "zone status"—generally identified as green, yellow, or red. FutureCost assists trustees, employers, and labor unions in understanding and preparing for the PPA's effects on their plans. The model projects plan assets and liabilities using negotiated contribution rates and benefit levels. It illustrates the impact of volatility in asset returns, changes in benefits or contribution rates, and the expected effects on credit balances and projected zone status, if any.
Endangered or critical plans (i.e., those that are not "green") require the trustees to adopt a funding improvement plan or a rehabilitation plan. FutureCost can be used to illustrate the universe of alternatives the trustees have to implement valid plans and to monitor them year to year.
FutureCost can also assist with liability-driven investment strategies and decisions regarding optimal asset allocations for the fund's portfolio.
Providing information to all of the stakeholders for a public plan can be a challenge. FutureCost can be used as a tool to educate board members, legislators, and staff on the projected contribution level, funded ratio, net pension obligation, and potential for volatility in the contribution rate. This modeling can be invaluable in investment strategy, plan design, and communications.
FutureCost by Milliman is both a microscope for examining short-term risk and a telescope for viewing long-term levels, trends, and variability in the key costs and financial measures that affect corporate, multiemployer, and public pension plan sponsors. At the hands of Milliman consultants, FutureCost offers the unique flexibility needed to make confident choices in the midst of a constantly changing economic climate.